High-level Side Event at the 2018 ECOSOC FfD Forum "Innovative Financing for Disaster Risk Reduction in Asia-Pacific"

24 Apr 2018
New York , United States of America

The side event "Innovative financing for disaster risk reduction in Asia-Pacific will be held on 24 April 2018, from 13:15 – 14:30 hrs., at United Nations, New York.

Disaster risk is outpacing resilience in Asia-Pacific. Yet only a fraction of disaster loss is covered by insurance - around 8 per cent – creating a large protection gap. As this percentage has not changed much over the decades, individuals, businesses and the government have borne over 90 per cent of disaster losses. Today, with rising economic prosperity, urbanization, and extreme weather events all converging, ‘business as usual’ will become unsustainable as the protection gap continues to widen. Even if donors, governments and multilateral development banks have gradually scaled up their financial assistance for disaster risk reduction and climate change adaptation, they have struggled to keep up with growing needs. The persistence of unfavourable fiscal environments has not helped either.

More promising is a series of innovations developed within the last decade such as catastrophe risk modelling, parametric insurance instruments, the convergence of traditional and global financial reinsurance markets, and recently, concessional insurance to be delivered by multilateral development banks and other development actors. This has made it possible to transfer sizable volumes of hazard risk to global markets in a cost-effective manner. Multi-state risk pools, particularly involving highly exposed countries, have used these innovations to reduce impacts of disasters on social and economic development, and smoothen fiscal shocks. However, while there have been examples of well-functioning risk pools such as in the Caribbean with payouts of more than USD 100 million, the benefits of risk pooling have been unevenly spread. For example, fifteen Pacific island countries have access to the Pacific Catastrophe Risk Insurance Company (PCRIC), but only five countries are currently participating, one country withdrew, and the volume of risk transfer has not been on par with other pools. After six years of operation PCRIC made payouts totalling US$ 3.2 million to two countries, respectively. ASEAN has a road map on disaster risk financing and insurance that after 8 years is still short of the pre-conditions for establishing a risk pool. At the national level, the Philippines is one of the few countries that has developed risk financing solutions. Through its government owned insurance agency (GSIS) and with the World Bank Treasury acting as the reinsurer and ultimately transferring the risk to international reinsurers, it provides coverage of US$ 206 million on a parametric basis, against typhoon damage.

The lack of uptake of these mechanisms in the broader Asia-Pacific region raises a number of questions
(1) How to increase demand for risk pools and all other forms of risk layered financing?
(2) What are the key components of a successful risk pool?
(3) What is the emerging best practice at national and regional levels?
(4) How is political expectation and political disappointment concerning payouts best managed in sovereign risk pools?
(5) Institutionalization and what is the role for ESCAP and the UN system?

Please visit ESCAP webpage at http://www.unescap.org/our-work/ict-disaster-risk-reduction for related background materials for the high-level side event and http://www.unescap.org/disaster-preparedness-fund