Disaster Risk Financing and Insurance: An OECD Perspective on the Way Forward

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1 2017/FMP/SEM1/016 Session: 4 Disaster Risk Financing and Insurance: An OECD Perspective on the Way Forward Submitted by: Organisation for Economic Co-operation and Development Seminar on Disaster Risk Financing and Insurance Policies Nha Trang, Viet Nam 21 February 2017

2 DISASTER RISK FINANCING & INSURANCE: AN OECD PERSPECTIVE ON THE WAY FORWARD André Laboul, Special Financial Advisor to the OECD G20 Sherpa and the Senior Counsellor to the Directorate for Financial and Enterprise Affairs APEC DRFI Seminar 21 February 2017 Nha Trang, Viet Nam OECD guidance and analysis on financial management of disaster risks The OECD has developed guidance and undertaken significant analysis of DRF issues: G20 Finance Ministers and Central Bank Governors invited the OECD to develop guidance to support financial resilience against disaster risks (2012) In 2013, APEC Finance Ministers asked the OECD to support an exchange of knowledge and practices on disaster risk financing issues. In 2015, the OECD built on this previous work by publishing the results of a global survey on disaster risk financing practices and challenges In 2016, the OECD published a report on the financial management of flood risk, applying the guidance for addressing a specific disaster risk. 2 1

3 OECD Guidance on Disaster Risk Management and Financing Development of G20/OECD Methodological Framework has led to the refinement of OECD s international guidance on these issues: Recommendation of the OECD Council on the Governance of Critical Risks (2014) [Draft] Recommendation of the OECD Council on Disaster Risk Financing Strategies (forthcoming) 3 Recommendation of the OECD Council on the Governance of Critical Risks (2014) Builds on 5 pillars: 1. Promote comprehensive, all-hazards and transboundary approach to country risk governance 2. Build preparedness through foresight, risk assessment and financing frameworks: 3. Raise awareness of critical risks to mobilise all of society to foster risk prevention and mitigation investments 4. Develop adaptive capacity in crisis management 5. Demonstrate transparency and accountability in risk-related decision making OECD is currently monitoring the implementation of this Recommendation. Key results for a range of OECD economies to be shared in late Spring

4 [Draft] Recommendation on Disaster Risk Financing Strategies Provides guidance on the development of a national strategy for managing the financial impacts of disasters, including: Comprehensive risk assessment processes that allow for the estimation of exposures and the identification of financial vulnerabilities (necessary expertise, data and scope) Effective management of the financial impacts of disasters by all segments of society (providing an institutional framework for supporting risk transfer, addressing challenges to insurance availability and affordability, and, where necessary, putting in place arrangements to support the vulnerable and minimise economic disruption) Effective management of the financial impacts of disasters on public finances (understanding government exposure, developing and disclosing ex ante plan for managing these impacts, and considering relative roles of investments in risk prevention and risk transfer) 5 Forward agenda Development of effective approaches to support implementation of OECD guidance Study on managing disaster-related contingent liabilities in public finance frameworks Study on risk mitigation instruments 6 3

5 Effective approaches implementing the DRF Recommendation In 2013, the APEC Finance Ministers indicated a need for: more experience sharing, with the help of the OECD, the ADB, the World Bank, and the relevant international organisations, to explore effective approaches that can facilitate the implementation of key priorities identified in the survey * on DRF practices *2013 APEC Finance Ministers Meeting: Joint Ministerial Statement ( Statements/Finance/2013_finance.aspx). 7 Effective approaches quantifying disaster exposures OECD guidance recommends: Ensuring sufficient institutional capacity for the identification and assessment of hazards, including through leveraging scientific and private sector expertise Ensuring that the data necessary for the quantification of exposures is collected and made available Sharing information and promoting harmonisation of this data nationally, regionally and internationally APEC Working Group on Regional Disaster Risk Financing Solutions work on developing methodologies should make an important contribution to building effective approaches 8 4

6 Effective approaches financial management of disaster risks by individuals/business OECD guidance recommends: Supporting public awareness of disaster risks and the need for financial protection Establishing an insurance regulatory and supervisory framework that ensures sufficient financial and operational capacity for the management of claims and transparency to consumers in terms of risks covered Addressing the challenges to the availability and affordability of financial protection, including through public intervention in disaster insurance markets (where necessary) Developing public compensation and financial assistance arrangements to address uninsurable losses IDF Working Group on Insurance Regulation and Resilience Policies should make an important contribution to building effective approaches 9 Effective approaches managing government exposures to disaster risks OECD guidance recommends: Evaluating the potential financial exposures of governments to disaster risks (recovery expenses, reconstruction of public assets, financial assistance, macro-economic impacts, etc.) Establishing mechanisms for estimating, accounting and disclosing contingent liabilities in national budgets; and developing and disclosing a plan for the financial management of these government exposures, taking into account the relative costs and benefits of various financing options OECD (and ADB) have been mandated by APEC to carry out study on Managing disaster-related contingent liabilities in public finance frameworks : Joint project with the World Bank Next phase (March-June 2017) country case studies to be carried out in selected OECD and APEC economies Additional country case studies can be included 10 5

7 OECD study on risk mitigation instruments in the APEC region Cebu Action Plan (Annex B) asks OECD to conduct a study of risk mitigation instruments available in the APEC region and develop a set of policy recommendations to improve their availability. One approach could be to examine the use of risk mitigation instruments used to manage public sector exposures (e.g. insurance, insurance-linked securities, pooling arrangements). Could be driven by the findings of the study on contingent liabilities 11 6