Disaster Risk Finance: Being Better Prepared

Over the past two weeks, the world has been monitoring the tragic impact of the tsunami in Sulawesi--a powerful reminder of the risks many communities and countries need to be prepared for every day. The scale of this disaster is apparent and shows the need for: immediate relief for those affected, international coordination and a continued investment in disaster resilience to protect lives and livelihoods.
 
In the face of devastation, Indonesia mobilized quickly—demonstrating   the country’s experience dealing with disasters.  For many countries, however, the impact of disasters can be much more devastating.  An effective strategy to managing climate and disaster shocks calls for resilience, risk financing instruments and institutional capacity that empowers early response and gives teeth to recovery and reconstruction plans.

Knowledge, shared experiences and financial resilience are making it possible for countries to manage the impact of disasters more effectively than ever. This agenda is not only a priority for Indonesia, but for every country that is prone to disasters.  It is why at the G20, world leaders committed to making the Global Financial System Work for All. Crowding private resources through contingent public finance facilities and system-wide insurance instruments is one of the areas where the World Bank Group is achieving progress to meet this commitment.  We are also a member of the InsuResilience Global Partnership. Established under a G20 mandate in 2017, with leadership by Germany and Vulnerable 20 (V20) countries, the partnership has created a forum for knowledge exchange on climate and disaster risk finance.
 
Our Disaster Risk Financing and Insurance Program has grown rapidly with the support of many donors. This work started in partnership with Switzerland and focuses on rapidly growing middle-income countries like Indonesia to integrate disaster risks into their overall fiscal risk management. Today, donors financing the program include the EU, Germany, Japan, and UK, among others. We are also extending technical advice for the development and implementation of comprehensive financial protection strategies in over 60 countries.
 
The range of financial services we offer to our client countries for disaster risk management is also expanding. This has translated to access to $2.5 billion in contingent lines of credit to provide rapid liquidity to supplement national budgets when a disaster occurs.  As well as an estimated $3.9 billion over the past decade, in catastrophe and weather risk transactions leveraging financial markets to provide protection to governments.
 
Every disaster is different and every country will face unique challenges in managing its response. But a common thread is that the future of recovery pathways will rely on four key elements: 

• Stable markets and strong institutions where risks are shared between public and private stakeholders. Where vulnerability is high, accounting for climate and disaster shocks in budget planning and risk management is no longer optional. Beyond insurance, strong payment systems are needed to ensure funding efficiently reaches the intended beneficiaries.
• Investing in delivery systems for an effective response and recovery. Providing rapid assistance to poor and vulnerable households is a priority in the wake of a disaster. Restoring access to health services, schools and economic activity goes beyond meeting basic survival needs.  This is one of the areas where the World Bank Group works with other development partners in countries hit by disaster.
• Innovation and technology to improve financial resilience. The World Bank Group, in partnership with Japan and the UK, the Centre for Global Disaster Protection, and leading insurers are launching a new initiative to advance the use technology for improved financial risk management of public assets. This is part of an ongoing collaboration with the private sector through the Insurance Development Forum.
• International collaboration. No country can build financial resilience alone. The Southeast Asia Disaster Risk Insurance Facility (SEADRIF) is an example of such a collective effort here in the ASEAN region. Under a mandate of the ASEAN+3 Finance Ministers and in partnership with Japan, the WBG is supporting SEADRIF to develop financial instruments including insurance, promote knowledge exchange, leverage investments in the development of public goods, and mobilize technical assistance. 

Acute disasters like Sulawesi threaten efforts to end poverty and promote shared prosperity. The Indonesian response offers many lessons.  Together, we will continue to drive this momentum and develop technology and innovative insurance tools for prevention, resilience and recovery.

Watch the replay of the High-level Dialogue on Disaster Risk Financing and Insurance in Indonesia which took place on October 10, 2018 at the IMF-World Bank Group Annual Meetings in Bali.

Image: Community meeting discussing the reconstruction of a village hit by a volcanic eruption, Yogyakarta, Indonesia. © Nugroho Nurdikiawan Sunjoyo/World Bank

This blog is published at http://blogs.worldbank.org/voices/disaster-risk-finance-being-better-prepared