For disaster reduction and financing, GFDRR is investing in infrastructure and helping countries develop advanced risk-financing and insurance mechanisms.
Risk Reduction and Risk Financing
GFDRR is promoting innovative and cost-effective local solutions to disaster risk reduction that can have high impact, including programs that catalyze the integration of disaster risk reduction and climate adaptation in Poverty Reduction Strategy Papers and Country Assistance Strategies, increase South-South cooperation and mainstream disaster risk reduction in development financing.
At a time when the frequency and intensity of natural disasters are on the rise and the effects of the global financial crisis are being felt by an increasing number of countries, the ability of developing countries to reduce their vulnerability to natural disasters and limit their fiscal exposure is becoming a priority. The impact of disasters require high fiscal liquidity to cover relief and recovery needs. When disaster strikes, countries with limited economic resilience often seek assistance from the international donor community or are forced to divert funds from development projects in order to respond to the emergency. GFDRR helps governments implement ex-ante risk financing strategies through the development of probabilistic risk assessment platforms, the creation of disaster risk atlases and the establishment and improvement of loss-modeling tools. By making more reliable data collection and new data management systems available, low- and middle-income countries create an enabling environment for better functioning insurance markets that use competitive and cost-effective risk financing instruments.
In the aftermath of catastrophic events, the governments of developing countries face a shortage of funds as emergency funds are not always immediately available. In addition, due to insurance market imperfections and the high volatility of insurance premiums, some governments are often deprived of natural disaster insurance. With this in view, GFDRR supports World Bank ex-ante catastrophic risk financing/insurance products, which can address the immediate liquidity needs of clients and can help manage and transfer catastrophe risks to the insurance and reinsurance markets.
Catastrophe Deferred Drawdown Option
Since responding to natural disasters can consume a significant portion of public resources in an unpredictable manner, Costa Rica (link to country program) and Colombia (link to country program) needed a reliable source of budget financing in order to reduce their fiscal vulnerability to these types of events. GFDRR-funded projects helped both countries design and implement the comprehensive national disaster risk management programs required to ensure access to the new financial product for sovereign liquidity following a disaster, in this case a Catastrophe Deferred Drawdown Option (CAT DDO) (link). This instrument, developed by the World Bank, acts as a "credit card" or source of bridge financing that may be accessed partially or in full if the country declares a state of emergency, so that governments are not forced to reallocate funds intended for long-term development goals.
Critical infrastructure
Disasters often damage infrastructure that is essential in routine circumstances and in an emergency situation. Moreover, infrastructure—such as hospitals, schools, transportation systems, ports, energy grids, water treatment and delivery, and communications networks—is crucial to a nation’s development.
As countries race to achieve the UN’s Millennium Development Goals by 2015, hospital and school construction is expected to increase. From a DRR perspective, this is an opportunity to build to higher standards of hazard resilience. In partnership with several international agencies, GFDRR promoted Guidance Notes for Safer School Construction [PDF] and Hospitals Safe from Disasters [PDF]. Brokering both the World Bank’s global expertise in building safe infrastructure and the UNISDR’s global advocacy capacity, GFDRR is well placed to cater knowledge products and other tools to policy makers and practitioners in disaster-prone countries for safe schools and hospitals.
In Madagascar, GFDRR funding helped the government upgrade its cyclone-proofing for public infrastructure (including schools, health centers, and administrative buildings) and introduce new standards into the national legislation. In Madagascar’s new building regulation, both builders and approvers are now potentially liable in case of building failure—and could be made to pay compensatory damages established by the penal code. This innovation resolves a major weakness in the DRM framework of many developing countries, where codes exist but are not respected.
In Vietnam, a project funded by GFDRR is helping the government assess the impact of climate change on urban drainage infrastructure in three cities situated on the country’s flat eastern coastal plain (just a few meters above sea level). While the current design of Vietnam’s urban drainage infrastructure is based on historic rainfall and tide-level information, it is now accepted that climate change is likely to have a significant influence on both rainfall and tide-level in the next 50 to 100 years, which is within the expected lifespan of the infrastructure. The GFDRR-funded study assessed the impact of climate change on existing urban drainage systems and is designing an improved system with sufficient capacity to handle more frequent storms, increased rainfall, and a rising sea level.
Risk Pooling
Assistance from GFDRR is also helping disaster-prone countries develop innovative disaster-risk pooling solutions. In the Pacific Islands, GFDRR is facilitating the establishment of a regional catastrophe risk pool (link), which would combine the economies of scale of merging the emergency reserve funds of several island states with the financial capacity of the international capital market. In the Philippines (link to country program), local government units have asked GFDRR for assistance to design a risk pooling facility that would allow access to immediate cash after a disaster for the restoration of critical facilities, like water lines. GFDRR's assistance is also helping the Philippine government develop private insurance products, including index-based schemes that pay out to farmers according to weather events.
South Eastern and Central Europe Catastrophe Insurance Feasibility
Support from GFDRR has prepared the groundwork for another innovative example of public-private partnership for pooling catastrophe risk with a regional insurance scheme. Owned by governments of South-Eastern and Central European countries, the new South Eastern and Central Europe Catastrophe Insurance Feasibility (SECE-CRIF) (link) transfers the risk from earthquakes and floods to the reinsurance market and increases the availability of affordably priced insurance for homeowners and businesses.
Advance risk financing and insurance mechanisms
GFDRR helps governments implement ex-ante risk-financing strategies through the development of probabilistic risk-assessment platforms, the creation of disaster-risk atlases, and the establishment and improvement of loss-model tools.
When relevant data is reliable and accessible, insurance markets that use competitive and cost-effective risk-financing instruments function better. On the flip side, insurance-market imperfections and highly volatile insurance premiums can deprive some governments of natural disaster insurance. With this in mind, GFDRR supports World Bank ex-ante catastrophe risk financing/insurance products which can address the immediate liquidity needs of clients and can help manage and transfer catastrophe risks to the insurance and reinsurance markets.
Examples include:
In both Costa Rica and Colombia a reliable source of budget financing was needed to reduce their fiscal vulnerability in the wake of unpredictable natural disasters. GFDRR-funded projects helped both countries design and implement the comprehensive disaster risk management (DRM) programs required to access a helpful financial product for sovereign liquidity called the Catastrophe Deferred Drawdown Option (Cat DDO) . This product, developed by the World Bank, acts as a source of bridge financing that may be disbursed partially or in full if the country declares a state of emergency, so that governments are not forced to re-allocate funds intended for long-term development goals. Assistance from the GFDRR is also helping disaster-prone countries in the region (and elsewhere) develop innovative risk-pooling solutions.
In the Pacific Islands, the GFDRR is facilitating the establishment of a regional catastrophe risk pool, which would merge the emergency reserve funds of several island states with the financial capacity of the international capital markets.
In the Philippines, a GFDRR-funded study is designing a risk pooling facility which is expected to involve the provincial governments and insurance companies.
Making Critical Infrastructure Resilient
Disasters are continually damaging critical facilities that are socially, economically, or operationally essential to the functioning of a community, both in routine circumstances and in an emergency. Such infrastructure, which includes health facilities, schools, transport systems, and air and sea ports, as well as energy, water, and communication networks, is crucial to promoting economic and social development. As countries race to achieve the Millennium Development Goals, the expenditure on construction of hospitals and school buildings is expected to increase. From a disaster risk reduction perspective, this is an opportunity to promote investments in infrastructure built to higher standards of hazard resilience. GFDRR has initiated, in partnership with several international agencies, a specific initiative to help developing countries make their schools and hospitals more disaster resilient. Brokering, on the one hand, the World Bank’s global expertise in building safe infrastructure and, on the other, the global advocacy capacity of the UNISDR, GFDRR is very well placed to cater knowledge products and other tools for policy makers and practitioners in disaster-prone countries for safe schools and hospitals.
In Madagascar, a GFDRR-funded project helped the government upgrade its cyclone-proof norms for public infrastructure (including schools, health centers and administrative buildings) and introduce them into national legislation. The new building regulation is truly innovative in that both builders and approvers are potentially liable in case of building failure and could be made to pay compensatory damages established by the penal code. This resolves a major weakness in the disaster risk management framework of many developing countries, where codes exist but are not respected.
In Vietnam, a project funded by GFDRR is helping the government assess the impact of climate change on urban drainage infrastructure being developed in three cities situated on the flat eastern coastal plain, only a few meters above sea level. While the current design of the urban drainage infrastructure is based on historic rainfall and tide-level information, it is now accepted that climate change is likely to have a significant influence on both of these items in the next 50 to 100 years, which is within the typical expected life of the infrastructure. A GFDRR-funded study assessed the impact of climate change on existing urban drainage systems and is designing an improved system with sufficient capacity to handle more frequent storms, increased rainfall, and sea level rise.