Living with Risk: The need to build partnerships

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Seminar on Strengthening Cooperation with the
Candidate Countries and Western Balkan Countries
in the Field of Civil Protection South Eastern
EuropeDisaster Risk Reduction and Adaptation
Initiative
Paola Albrito UN/ISDR Secretariat - Regional
Coordinator Europe and Eugene N. Gurenko, Ph.D.,
CPCU, ARe Lead Insurance Specialist
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The costs of disasters Economic loss in
comparison to GDP in SEE countries
Number of years taken for average Country GDP PPP per capita /inh. 2005 Annual average economic loss due to all perils (million USD) to GDP Economic loss (in million USD) Economic loss (in million USD) Economic loss (in million USD) Economic loss (in million USD)
Number of years taken for average Country GDP PPP per capita /inh. 2005 Annual average economic loss due to all perils (million USD) to GDP Drought EQ Flood Tropical cyclone
1974-2006 Albania 2755.3 68.67 2.49 2238 2 to 5 24.673 0
1989-2006 Bosnia and Herzegovina 2384.0 22.94 0.96 408 gt 5 0 0
1974-2006 Bulgaria 4733.9 14.76 0.31 0 5 260.23 0
1989-2006 Croatia 6376.2 33.76 0.53 330 gt 5 0 0
1989-2006 Macedonia 4467.7 24.59 0.55 0 5 353.6 0
1984-2006 Moldova 2876.1 61.40 2.13 0 0 152.584 31.6
1974-2006 Romania 5954.9 292.76 4.92 500 2756 3269.3 0
1989-2006 Serbia and Montenegro 4936.0 82.0 1.66 2705 0 0
1984-2006 Slovenia 13611.4 7.31 0.05 0 10 5 0
1974-2006 Turkey 4680.8 560.56 11.98 0 15988 2511 0

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Recurrence of flood events in Europe, 1998-2005
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SEE governments are fiscally unprepared to deal
with catastrophic losses

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Global Trends - Disasters are NOT natural
Natural and human-induced hazards Climate change
and variables (global warming and global
dimming)
HAZARDS EXTREME EVENTS
Socio-economic poverty, unplanned urban
growth, lack of awareness and institutional
capacities... Physical insufficient land use
planning, housing, infrastructures located in
hazard prone areas... Environmental degradation
ecosystem degradation coastal, watershed,
marshlands), etc.
VULNERABILITY


Natural hazard
Vulnerability
X
Disaster Risk
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WHY A NATIONAL PLATFORM?

• Disaster risk reduction is an issue of great
  complexity that requires close cooperation among
  stakeholders representing comprehensive skills
  and knowledge needed for disaster risk reduction
  and its mainstreaming into development planning
  and practice.
• Therefore Need of
• A nationally-owned coordination mechanism
  (adopting the form of a forum or committee)
• A participatory process (different sectors
  perspectives and actions, and a multistakeholder
  composition

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UN RESOLUTION ON NATIONAL PLATFORMS In 1999, the
UN Economic and Social Council, Resolution
1999/63, called on all Governments to
maintain and strengthen established national and
multi-sectoral platforms for natural disaster
reduction in order to achieve sustainable
development goals and objectives, with the full
utilization of scientific and technical
means. In 2005, the UN General Assembly,
resolution A/RES/59/231 called upon
Governments to establish national platforms or
focal points for disaster reduction, encourages
government to strengthen platforms where they
have already exist, urges United Nations system
to provide appropriate support to those
mechanisms UN RESOLUTION ON NATIONAL
PLATFORMS In 2005, the Hyogo Framework for
Action 2005-2015 Building the Resilience of
Nations and Communities to Disasters One of the
Framework strategic goals is the Development and
strengthening of institutions, mechanisms and
capacities to build resilience to hazards. It
calls all nations to Support the creation and
strengthening of national integrated mechanisms,
such as multisectoral national platforms to
ensure that disaster risk reduction is a national
and a local priority.

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Key Areas of the Initiative

• Hydrological and meteorological forecasting, data
  sharing and early warning system
• Strengthening regional capacities in disaster
  risk reduction and response
• Financing of disaster losses and risk transfer
  mechanism

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Partnership

• WB-UN/ISDR secretariat in partnership with main
  UN agencies and actors based on the priority
  areas
• UN Agencies part of the ISDR system WMO (Strong
  partner for the Hydromet Component), UNICEF, UNDP
  etc..
• Regional Organizations Council of Europe, the
  EU, DPPI, OECD etc..
• Bi-lateral/Multilateral donors Denmark, Finland,
  Switzerland, Italy etc.. (if interest shown by
  the SEE countries and by donor)

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Hydrological and Meteorological Forecasting, Data
Sharing and Early Warning System

• Initiative has been agreed during the ICEED
  meeting in Dubrovnik in May 2006
• Strong partnership with WMO
• Objective of this initiative is to promote a
  coordinated approach and data sharing in Hydromet
  services in South Eastern Europe
• Feasibility assessment has been completed and was
  discussed in a regional meeting on October 24-25,
  2007 in Zagreb
• Coverage Moldova, Romania, Bulgaria, Serbia,
  Montenegro, Croatia, Albania, Macedonia, Bosnia
  Herzegovina

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Flood Forecasting and Early Warning System on
Sava River

• Initiative was agreed during Podgorica meeting of
  the Directors of Hydromet services in Sava river
  countries in April 2007.
• Objectives is to build capacity and to
  re-establish data sharing and collaboration on
  flood forecasting and early warning system on the
  Sava river.
• Feasibility Assessment has been completed and
  discussed in a regional meeting in Zagreb on
  October 24-25, 2007.

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Disaster Risk Reduction and Response

• Objectives is to promote and implement investment
  priorities for strengthening the capacity and
  promote a coordinated approach to disaster
  preparedness and response
• Will be built on existing agreements
  Civil-Military Emergency Planning Council and the
  Disaster Preparedness Initiative of the Stability
  Pact
• Vulnerability Assessment Desk Review is completed
• More detailed assessment of disaster response is
  needed. Currently working on Civil Protection
  review.

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Risk transfer component

• Creation of a regional catastrophe insurance pool
  that would offer affordably-priced catastrophe
  insurance coverage to homeowners and SMEs in SEE
  countries.
• Development of standardized tradable weather risk
  hedging instruments to protect businesses against
  loss of revenue due to adverse weather
  conditions.
• Contingent loan facilities for natural disasters
  A Cat DDO

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Schematic allocation of sovereign catastrophe
risk by sources of risk financing and available
World Bank instruments
Available World Bank instruments
200 year event or in excess of 5 of fiscal
revenue
Emergency reconstruction loans
Donor aid
100-200 year event or in excess of 5 of fiscal
revenue
Catastrophe bonds for sovereigns
Catastrophe bonds
30-100 year event or in excess of 5 of fiscal
revenue
Catastrophe risk insurance pools
Reinsurance
30 year event or up to 5 of fiscal revenue
Disaster Draw-Down Option loans
Risk financing

20 year event or up to 3 of fiscal revenue
Risk retention
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Deferred Draw-Down Option Loan for Natural
Disasters (DDO)

• Will provide immediate liquidity to fill the
  budget gap in the aftermath of natural disasters.
• Disburses under pre-defined conditions such as
  declaration of national emergency by government.
• Certainty of disbursement
• Highly affordable pricing.
• Prerequisites
• Sustainable debt level
• Satisfactory macroeconomic framework
• Satisfactory emergency budget appropriation
  legislation/system in place
• Completion of a risk assessment program and
  preparation of a hazard risk mitigation strategy
• Could be used to support govt recovery programs
  or govt backed insurance

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Risk transfer solutions for homeowners and SMEs
Proposed South Eastern Europe
Regional Catastrophe Insurance Facility
Catastrophe insurance coverage against
the risks of flood and quake for homeowners and
SMEs
Reinsurers
Premium
2
Sum Insured
SEE Home owners
SERCIF
Premium
3
Protection
Protection
Special Purpose Vehicle
Investors
SEE countries
LiborSpread
Contingent Credit Facility
Bond principal
Spread
IBRD
1. 2. 3.
IBRD provides advisory support to SEERCIF member
countries in structuring and launching the
facility. SEE households buy a SEERCIF insurance
policy by paying an annual premium for its cover.
The facility retains a part of risk relying on
IBRD contingent capital to pay small claims. In
the absence of claims it accumulates
reserves. The facility transfers most of risk to
reinsurance and capital markets either through a
reinsurance contract or by issuing a cat bond.

Advisory support
1
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Hedging weather exposure of businesses to weather
in SEE
Buyers of weather risk protection
Sellers of weather risk protection
SEE metservices
Electronic portal
Weather reference indices (temperature,
precipitation, wind)

Risk management advisor to SMEs
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Next steps

• Establish the insurance facility in one of the EU
  countries
• Obtain expressions of interest for participation
  in the program from SEE client countries.
• Prepare individual country projects.
• Commence program implementation.

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Thank you