Hard data and hard choices: Disaster risk financing in an Asian city

Floods in India and Pakistan, typhoons in the Philippines and the recent earthquake in Nepal have reminded city leaders of the urgent need to safeguard the lives of their people, protect costly infrastructure, and ensure services and businesses can continue after disaster strikes.

The question is then, how do you assess the risks to your city, and make sure you can cover the costs of problems when they strike? Hard data are key, and hard choices need to be made. But, having got all the information and made the decisions, everyone can sleep at night feeling safer.

So what is the ideal process for a fast-expanding city?

First, select a property survey team with civil engineers experienced in applying geographical information systems (GIS) to assess the resilience of your city structures and building techniques. The latest drone technology equipped with GPS technology can record the exact location of all buildings and other infrastructure. Ask the representatives of national and regional research institutes on seismology and atmospheric research to provide you with information on seismic activity, as well as changing weather patterns, to assess the exposure of your city to natural calamities. This is particularly important for key infrastructure—i.e. hospitals, schools, bridges, roads ports and airports—that are the relief and communication network for you and your people. Tap an international risk modelling team, using an open platform model, to undertake the risk modelling of your city’s exposure, based on the updated information in the GIS maps and their access to data on climate and seismic activity.

Then, support the intellectual property rights of your national research institutes and develop international data-sharing agreements to facilitate networking among research centers  going forward. Coordinate with insurance companies and their actuaries to assess the costs of insuring the exposed infrastructure. You want to know how much of the risk can be absorbed in your local market, and how much needs to be offset in the international reinsurance market. Ideally, you would encourage a lower risk retention among the insurance companies in your city, to prevent risk exposure being concentrated locally in a small the event of a disaster. Perhaps you can encourage local insurance representatives and their national CEOs to cede a significant proportion of their risk to a group of international reinsurance companies, as this will enable your community’s access to a wider insurance base. Invite reinsurance company representatives to review the risk modelling and the risk-based pricing, and request their feedback and proposals.

You may realize that some of the infrastructure is faulty, and needs significant upgrading before it can be insured. You will likely also realize that the cost of insuring all commercial, residential and infrastructure property is very high and needs to be shared between the national government, the residents and the business owners, and also your own municipal budget. Lastly, you need to make tough financial, administrative, and legal decisions. Do you raise municipal taxes to pay for insurance cover, limit urban expansion to minimize the assets at risk, change the zoning on mixed use commercial and residential, enforce stricter building codes as well as use internationally validated building technology, and/or require third party inspection on the quality of strategic infrastructure to ensure new contract specifications on resilience are achieved?

Throughout all of this, it’s important to keep your fellow city dwellers fully informed. Improved education in schools and city-wide campaigns about the effects and impacts of climate change (and, in some places, seismic activity) can help explain why the city is taking the decisions it is taking. Information can also help them to work out how to better protect themselves against disasters or long-term climate effects.

No, it isn’t easy. But by being aware, informed and equipped, urban administrations can make better decisions, and citizens better understand why those decisions are being made in the long-term interest of themselves and the city they live in.