Issues and Initiatives
Be mindful of the future despite the blissful ignorance of the present. Today is the good old times of tomorrow. Karl Valentin (German actor, writer and comedian, 1882-1948) 2
The impact of extreme weather on poverty is more devastating than previously understood. Source: Hallegatte, Stephane, Vogt-Schilb, Adrien, Bangalore, Mook, and Julie Rozenberg, 2016, Unbreakable: Building the Resilience of the Poor in the Face of Natural Disasters, Climate Change and Development Series (Washington, D.C.: World Bank Group). 3
Disaster risk reduction goes hand in hand with poverty reduction. Source: Hallegatte, Stephane, Vogt-Schilb, Adrien, Bangalore, Mook, and Julie Rozenberg, 2016, Unbreakable: Building the Resilience of the Poor in the Face of Natural Disasters, Climate Change and Development Series (Washington, D.C.: World Bank Group). 4
Insurance coverage in most emerging market and developing countries remains stubbornly low. Only about 17 percent of people in low- and middle-income countries use financial savings and insurance (45 percent in high-income countries). Even lower penetration of catastrophe risk insurance (<5 percent), except countries where certain insurance is compulsory (Turkey). Households and firms have to bear most losses, esp. in countries with limited fiscal means for post-disaster recovery and reconstruction. 5
WBG has been a staunch advocate of inclusive insurance to close the protection gap not only stifles growth and limit lending opportunities but also makes it harder to implement projects that can benefit from World Bank assistance. World Bank s dual goal of ending extreme poverty and raising shared prosperity only achievable if countries enhance their resilience to impact of natural disasters and climate risk. Insurance enhances post-disaster financial response capacity Mitigates immediate adverse impact and reduces poverty Long-term benefit on consumption/investment Free up fiscal space for counter-cyclical policies 6
We have developed financial products and advisory services to increase countries financial resilience to disasters. Characterized by a strong collaboration with private sector Build donor-funded risk-absorption capacity Mobilize private resources for innovative forms of risksharing Disaster Risk Finance and Insurance Program (DRFIP) is donorfunded and emblematic of joint efforts with the private sector Two important aspects of inclusive insurance: Insurance as key part of recovery effort Insurance principles promoting better risk management 7
Disaster Risk Financing and Insurance Program (DRFIP) comprises four main areas Sovereign Disaster Risk Finance Market Development DRF for Rapid Response Financing DRF for Budget Protection $ DRF for Resilient Livelihood DRF for Agriculture DRF Analytics for Financial Decision-Making DRF Knowledge Management and Global Partnerships DRF for Property Cat Insurance Aim Enhance efficiency from grant-making to executed activities Move from top-down, parametric insurance coverage for sovereigns to indemnity-based retail distribution 8
Making our efforts more effective and sustainable Recognition of two major constraints: Institutional impediments to greater sovereign participation Disincentives for investment in prevention/preparedness Considerable moral hazard of fiscally-constrained governments Strengthen local advocacy and improve economic terms Educating governments and public alike about the benefits of ex ante risk management Regional risk pooling (e.g., Caribbean Catastrophe Risk Insurance Facility (CCRIF)) 9
Caribbean Catastrophe Risk Insurance Facility (CCRIF SPC) First multi-country risk pool based on parametric insurance for hurricanes, earthquakes and since 2013 excess rainfall. Post-disaster financial liquidity within 14 days; since 2007, payouts totaling approx. US$38 million to 8 members. Expanded to countries in Central America through a partnership with COSEFIN (April 2015). By pooling catastrophe risks into a single diversified portfolio, countries premiums are about half of what it would cost if they were to purchase identical coverage individually from CCRIF. 10
More emphasis on ex ante financial planning to address incentive problems of governments in purchasing disaster risk insurance New contingent financing instruments allow countries to access post-disaster liquidity Loans with catastrophe draw-down option (CAT DDO) Capital-at-Risk Notes Program Pandemic Emergency Financing Facility (PEF) But sustainable expansion of insurance coverage requires indemnity-based, retail-focused insurance products. 11
But insurance is only one tool for financial protection Insurance as part of a comprehensive and multi-faceted approach to enhance the resilience of countries Enhanced infrastructure helps countries be better prepared to prevent financial damages Particularly important when post-disaster losses have a social component (i.e., positive externality) that cannot be covered by insurance 12
We facilitate infrastructure investments supporting actions against climate change, especially in emerging markets. Lower gap between investor risk appetite and riskiness of infrastructure investment in developing economies. Help governments develop a favorable legal environment and prepare projects, thus, lowering existing informational hurdles Global Infrastructure Facility (GIF) Make range of World Bank guarantees more understood and understandable; also for political risk (via MIGA), which often dominates investment decisions Expand climate-smart financial products (e.g., green bonds) 13
Thank you!