Disaster Risk Financing in APEC Economies
In their Joint Ministerial Statement of 30 August 2012, APEC Finance Ministers highlighted the importance of strengthening resilience against disasters in the region through the introduction or expansion of risk sharing and risk transfer markets and products. They called for the exchange of knowledge and information on good practices regarding financial strategies among APEC member economies. In pursuing this initiative, APEC Finance Ministers aimed to complement the work already undertaken in 2012 by the G20, who endorsed last November the G20/OECD Methodological Framework for Disaster Risk Assessment and Risk Financing.
Prepared by the OECD in cooperation with the Asian Development Bank, UNISDR and the World Bank, this report provides a survey of disaster risk financing (DRF) practices within APEC, including implementation challenges. It constitutes the first step towards promoting effective and widespread implementation of the G20/OECD Methodological Framework in the APEC region and beyond in the area of DRF. This report is based on a survey questionnaire circulated to APEC economies, the responses to which now constitute an inventory available to member economies. The report shows that efforts have been made within APEC to promote financial resilience against disasters, although important implementation challenges exist. Key priorities for future work have thus been identified in this field. Initiatives have been undertaken within APEC to strengthen disaster risk assessment and modelling.
The results have been used for multiple applications: from emergency management, urban planning, and risk reduction investments, to budgetary planning and risk transfer and financing. Efforts are also being made to improve the collection and analysis data on hazards, exposures, vulnerabilities and losses. Notwithstanding progress in this area, developing an accurate risk assessment based on quantitative approaches remains a challenge for governments. Private insurance is one of the main risk financing tools that businesses and households may use to strengthen their capacity to withstand the financial impacts of disasters. APEC economies are seeking to enhance the availability and penetration of disaster insurance. Institutional arrangements have been established in some economies to support private-sector development of products. Initiatives have also been undertaken to ensure that the financial sector is sound and resilient, capable of delivering promised payments and financing in the event of a disaster. To manage their own exposures, many governments within APEC employ a broad range of ex ante DRF tools, such as government reserves, insurance, contingent credit arrangements and/or catastrophe-linked securities.
Other APEC governments, instead, finance disaster risk on an ex post basis – e.g., through budget reallocations, debt financing, increased taxation and international aid – or by adopting an approach that blends ex ante and ex post mechanisms. Risk pooling of disaster risks at the regional level has been tested by some smaller economies, with a view to achieving mutual risk sharing and economies of scale when accessing the international reinsurance marketplace. Among the top priorities for strengthening financial resilience in the APEC region, the improvement of the availability and quality of data on hazards, exposures, vulnerabilities and losses deserves special attention. Key priorities also include the improvement of financial sector resilience to disaster events and the enhancement of technical and institutional capacities and coordination among the various governmental authorities in charge for DRM at the central and local level. Promoting awareness of the financial impacts of disasters and the need for financial protection is yet another priority area. There is also strong interest in fostering the development of DRF markets, including insurance, reinsurance, and micro-insurance markets.
Many APEC economies have stressed the value of strengthened cooperation and knowledge and information exchange among member economies on topics related to disaster risk financing. Such cooperation and exchange of knowledge and information should focus on addressing APEC member economy priorities and support capacity building and the evaluation of DRF strategies and policies within member economies.