Peru: A Comprehensive Strategy for Financial Protection Against Natural Disasters

Transcription

1 2017/FMP/SEM1/006 Session: 2 Peru: A Comprehensive Strategy for Financial Protection Against Natural Disasters Submitted by: Peru Seminar on Disaster Risk Financing and Insurance Policies Nha Trang, Viet Nam 21 February 2017

2 PERU: A Comprehensive Strategy for Financial Protection against Natural Disasters DISASTER RISK ASSOCIATED WITH NATURAL EVENTS: A COMPREHENSIVE FINANCIAL PROTECTION STRATEGY Published by the MoF the 26 th July, Presented to the Secretaría General de Riesgo de Desastre of the Presidency of the Council of Ministers (PCM) by MoF in a technical workshop the 26th July, Spanish link: PUBLIC-SPANISH.pdf English link: PUBLIC-FINAL-PeruFinProtection-ENG-Low.pdf 1

3 NATIONAL GOVERNMENT FINANCIAL STRATEGY TOWARDS FINANCIAL RESILIENCE Residual risk: losses may end up including private losses and financial system rescue Capital markets or reinsurance instruments (Cat Bonds, Parametric Insurance, weather derivatives, etc.) Limit???? Unintended retention! Limit to be defined National Government in charge Emergency levels: 4 and 5 Emergency levels: 1, 2 and 3 Risk transfer Use of resources for preparation, response, rehabilitation, based on the SINAGERD law: - Budget resources (reallocation) - Contingency Reserve - Contingentcredit lines - FEF (Fiscal StabilizationFund) Always possibility of post disaster financing for rehabilitation and reconstruction (multilaterals, bonds ) Public Assets Insurance Resources for response, rehabilitation, reconstruction + donations Limit to be defined Risk retention Billions of dollars at stake (Earthquake Lima/Callao, Niño, South Earthquake, Niña, etc.) Transfer the maximum of direct and potential risks away (development of public assets and private insurance => cooperation with SBS, MVCS, APESEG, ASBANC ). Regional and local governments in charge Key: Reduce the vulnerability so as to reduce the residual risk => PP 068, SNIP, and work with business associations. STRATEGIC LINES OF ACTION 1. Identify, quantify, and assess fiscal risk associated with natural disasters. 2. Prepare the building blocks for the development and implementation of risk retention and risk transfer tools. 3. Establish guidelines for the use of funding available in the aftermath of major disasters. 4. Promote the assessment, prevention, and mitigation of disaster risk and emergency preparedness through budget financing mechanisms, in the context of results-based budgeting and incorporate DRM into public investment. 5. Promote the development of the domestic catastrophe insurance market to address natural hazard disasters. 6. Coordinate and promote management of business continuity of government operations, which is critical to the implementation of the DRM financial strategy. 2

4 STRATEGIC LINES OF ACTION 1: IDENTIFY, QUANTIFY, AND ASSESS FISCAL RISK ASSOCIATED WITH NATURAL DISASTER 2015 IADB conducted a Flood Risk Profile in 3 regions : the WB is assisting the MoF with the preparation of a tool that facilitates assessment of strategy options for the financing of disaster losses, taking into account the economic opportunity cost of the different financing options 2014: The MEF, with the assistance of the IADB, completed a National Seismic Risk Profile for public assets, using a probabilistic approach to conduct the national risk assessment. 2013: In the context of the Probabilistic Risk Assessment (CAPRA) program, the WB prepared a risk profile of Lima and Callao for the GoP for the education, health, and water and sanitation sectors. 2009: IADB conducted a study of the financial impact of seismic risk in several countries including Peru and, more specifically, in Lima and Callao. STRATEGIC LINES OF ACTION 2 PREPARE THE BUILDING BLOCKS FOR THE DEVELOPMENT AND IMPLEMENTATION OF RISK RETENTION AND RISK TRANSFER TOOLS (1/2) Residual Risk Transfer Indemnity insurance - public goods and concessions Non-traditional insurance: parametric, CatBond, CatSwap, etc. Post-disaster loans Retention Contingent lines of credit Fiscal Stabilization Fund (FEF) Contingency reserve Budget Reallocations 3

5 STRATEGIC LINES OF ACTION 2 PREPARE THE BUILDING BLOCKS FOR THE DEVELOPMENT AND IMPLEMENTATION OF RISK RETENTION AND RISK TRANSFER TOOLS (2/2) Main Achievements The Financial Stabilization Fund has been substantially increased and the pre-conditions for its use for disasters have been made easier USD MM Dedicated Contingent Liabilities have been increased from USD 400 MM to 1200 MM. Contingency Reserve Fund for attention disaster risk, S/. 300 MM (USD 90 MM). STRATEGIC LINES OF ACTION 3 ESTABLISH GUIDELINES FOR THE USE OF FUNDING AVAILABLE FOR POST-DISASTER REPONSE Objective: Clear protocols and procedures for the proper and efficient use of funds available for postdisaster needs. In January 2015 a Working Group on Financial Coordination in the Aftermath of Major Disasters was established within the MEF. Looking forward: Working Group functions: drafting of basic procedures, protocols, and principles for the use of available recovery funds in the event of major disasters, coordinate all financial aspects of the response, rehabilitation, and reconstruction processes with PCM. The use of those funds depends of many aspects: i) cost-benefit analysis, ii) financial liquidity, iii) availability of funds, iv) macro fiscal situation, among others. The permanent Working Group will also have access to the cost-benefit financial analysis tool being developed by World Bank. 4

6 STRATEGIC LINES OF ACTION 4 PROMOTE THE ASSESSMENT, PREVENTION, AND MITIGATION OF DISASTER RISK AND EMERGENCY PREPAREDNESS THROUGH BUDGET FINANCING MECHANISMS, IN THE CONTEXT OF RESULT-BASED BUDGETING, AND INCORPORATE DRM INTO PUBLIC INVESTMENT. Work done: Risk mitigation policies: Law establishing additional measures for the prevention, mitigation, and proper preparation of disaster response operations was approved in 2014 The GoP has previously developed permanent financial mechanisms to mitigate disaster risk. In 2010, the Strategic Budget Program for the Mitigation of Disaster Vulnerability and Emergency Response (PP068) was created and the amounts budgeted for it have been substantially increased every year. There is also a municipal incentives program for risk reduction. DRM has been incorporated into the design, formulation, and execution of public investment projects (PIPs) in the context of the National Public Investment System (SNIP). A new legal framework was enacted in 2016, this change the SNIP framework. Objective: The efficient allocation of risk mitigation resources, thus avoiding the need for higher government expenditure on response, rehabilitation and reconstruction; that is, the mitigation of the potential residual risk, which could be very high and create additional needs for post-disaster financing, which could have a negative impact on public debt ratios and thus on the country s credit rating. Much has been done, but more is needed. STRATEGIC LINES OF ACTION 5: PROMOTE THE DEVELOPMENT OF THE DOMESTIC CATASTROPHE INSURANCE MARKET TO ADDRESS NATURAL HAZARD DISASTER Situation: Insurance penetration in Peru is low compared to the regional average (insurance premia at 1,5 % of GDP; less than 5 % of homes are insured). Work done: Resolution SBS No establishes the regulations for creating the Catastrophic Risk and Unexpected Loss Reserve, supported by the Technical Note prepared by the CISMID. In 2012, Law No on the Insurance Contract was published, which strengthens the contractual relationship by protecting the insured. In 2013, the General Law on the Financial and Insurance Systems and the Organic Law on the Superintendency for Banking and Insurance (Law No ) was updated. PLANAGERD Specific Objective 4.2. : Promote risk transfer. Ongoing dialogue between the MEF and the SBS with a view to devising joint actions to strengthen and develop the catastrophe insurance market. Development of the domestic catastrophe insurance market would help reduce the potential demand for State resources (implicit contingent risk) in the event of a disaster and increase access to insurance for both private enterprises and the general public 5

7 STRATEGIC LINES OF ACTION 6: COORDINATE AND PROMOTE MANAGEMENT OF BUSINESS CONTINUITY OF GOVERNMENT OPERATIONS, WHICH IS CRITICAL TO THE IMPLEMENTATION OF THE DRM FINANCIAL STRATEGY Implementation of DRM including its financial components will be difficult, if not impossible, if State entities are not able to ensure operational continuity. Current situation: One of the sub-processes of the rehabilitation process, established in the SINAGERD Law, is the continuity of critical public services Specific objective No. 5.2 of PLANAGERD: Develop management of the continuity of government operations. In February 2015, Guidelines for Managing Public Business Continuity issued by PCM Objective: Ensure that all public entities have implemented and updated operational continuity plans. Thank you! 6