ARC 5th IDCR 28 August 2014 Ekhosuehi Iyahen v2

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5th International Disaster and Risk Conference IDRC 2014 Integrative Risk Management - The role of science, technology & practice 24-28 August 2014 in Davos, Switzerland

5th International Disaster and Risk Conference IDRC 2014 Integrative Risk Management - The role of science, technology & practice 24-28 August 2014 in Davos, Switzerland

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  • Moving forward – prototypes for 2 client countries
    Based on experience we will design next step – has legs and will be moving forward

Transcript

  • 1. ARC Sovereign Disaster Finance Ratings System (SDFR) 5th International Disaster & Risk Conference IDRC Davos 24-27 August 2014
  • 2. African Risk Capacity (ARC) • The African Risk Capacity is a continental sovereign risk pool and early response mechanism designed to provide cost-effective contingency funding to African Governments to execute pre-approved contingency plans in the event of severe weather disasters • ARC’s mission is to help African Union Member States improve their capacities to better plan, prepare and respond to extreme weather events and natural disasters and to assist its Member States to protect the food security of their vulnerable populations
  • 3. Three ARC pillars creating value ARC brings together three critical elements to achieve its mission: • Early Warning: Africa RiskView • Insurance: Index-based insurance and risk pooling • Response: Contingency Planning Two value drivers make ARC an efficient tool to manage droughts and other risks for Member States: • Improved risk management through risk transfer and risk pooling • Early response actions and improved targeting  Estimated cost-benefit of US$ 4.4 for every US$ 1 spent on ARC versus traditional emergency response ¹ ¹ARC Cost Benefit Analysis, IFPRI, Oxford University and Boston Consulting Group
  • 4. Creating value • Assistance to government in assessing and quantifying risk, identifying the different tools for effective risk management in addition to risk transfer • Enabling government determine what is appropriate for the country to support the resilience building of the affected communities based on frequency of pay-outs; lower pay-outs more frequently or Higher pay-outs less frequently • Envisaged to protect the investment government is making in building community and household resilience through risk reduction initiatives and other social safety net programs; avoiding households asset depletion during drought and preventing households from falling into the chronic food insecure situations • Capacity building on early warning systems, risk transfer and contingency planning
  • 5. Parallel with ARC: the PRM PRM rating was used to assess operational plans against ARC’s Elaboration of OP Submission to TRC and recommendations Submission to PRM Issue of Certificate of Good Standing Access to funds from ARC standards and guidelines Eligibility criteria 1 2 • Time sensitive • Livelihood saving • Duration Implementation criteria Payment of Premium • Operations • Admin & flow of funds • Needs assessment & targeting • M&E
  • 6. The idea • Process alerted us to the opportunities for: – countries to highlight, and mitigate, the gaps in their disaster management and leverage the progress made in disaster planning to attract financing – enhanced analytical rigour and international independent credibility to the assessment of Member States’ ability to effectively execute their plans. • Began exploring the idea of whether there is a scope to extend the use of ARC services to non-ARC Ltd funding streams, by establishing an objective standard-setting and certification body for index-based insurance products and other risk financing for catastrophic disasters. This in essence is a ratings proposition.
  • 7. Beyond the PRM: What are we measuring? • Such a ratings mechanism would objectively assess a country’s: – financial resilience to disasters, through assessing its ready access to capital in relation to its quantifiable risk; – where appropriate, the ability and willingness to pay premiums for disaster risk financing instruments and to cover other costs related to the maintenance of reserves; and, – operational capacity to effectively and to accountably deploy funds to assist affected populations in times of crisis.
  • 8. Beyond the PRM: What are we measuring? • Will also include the quality and effectiveness of their interventions in terms of how they were deployed but also the appropriateness of the interventions in the first place. It should also include aspects that relate to: – the speed and efficiency of all country processes within the DM system, – operational capacity of governments and its partners, – the strength of existing response systems – the strength and accuracy of their targeting and needs assessments, – timing of response – the quality of their M&E&R systems – evidence that responses are working and improving • Without this, policy frameworks and reserves mean nothing as assistance will not be deployed effectively.
  • 9. Beyond the PRM: What are we measuring? – Analyse OPs vs. based on ARC’s guidelines eligibility criteria. – Rank expected efficiency of targeted outcomes vs. benchmarks. – Assess track record in meeting requirements of beneficiaries Operations plan assessment – Analyse flow of funds once received by entity – Assess divisions or structures through which funds pass, legal structures governing the process, and provide a weak-link analysis. Financial structure assessment – Appropriateness of systems and IT infrastructure to monitor the flow and dissemination of funds internally – Assess value of beneficiaries’ funds eroded through transactions and facilities provided by 3rd parties. Systems and leakage assessment – A forward looking view based on proposed advancements and corrective measures relative to existing structures Development prospects assessment – Assess if robust oversight and directional framework can support activities – Absence of adequate RMCG factors may weaken country’s capacities – Neutral or negative Impact on overall rating Risk Management and Corporate Governance (RMCG)
  • 10. Conceptualising the Ratings: Key considerations • It is a call for a wide engagement of stakeholders throughout the disaster risk reduction and management ecosystem, to participate in the elaboration and implementation of a credible independent entity that would establish and assess continually improving standards towards the common goal of better disaster preparedness in an increasingly unstable environment. • For capital providers: - Measure risk of providing disaster financing to a country - Compare across geographies disaster preparedness • For countries: - Ex-ante assessment to attract disaster financing - Incentivise improvement of broader risk management platform in medium to long term
  • 11. Next Steps? • Assess feasibility • Define scope of first assessments • Engage funding providers and countries • Open market for service providers • Any suggestions?
  • 12. Text • Recognizing the need for financial and operational preparedness for disasters, and acknowledging the significant contribution and increased demand from lower income countries for the services being provided by regional risk pools such as the African Risk Capacity (ARC), the Caribbean Catastrophe Risk Insurance Facility (CCRIF) as well as the private risk markets, multi-lateral agencies and donors, there is a need for an objective sovereign disaster risk finance ratings system to facilitate access to risk finance for sovereigns. • Such a ratings mechanism would objectively assess a country’s 1) financial resilience to disasters, through assessing its ready access to capital in relation to its quantifiable risk; 2) where appropriate, the ability and willingness to pay premiums for disaster risk financing instruments and to cover other costs related to the maintenance of reserves; and, 3) operational capacity to effectively and to accountably deploy funds to assist affected populations in times of crisis. • The Conference requests the United Nations International Strategy for Disaster Risk Reduction (UNISDR), ARC, CCRIF, OCHA, the Collaborative Africa Budget Reform Initiative (CABRI) and private sector partners to establish a steering committee to oversee the development of standards to be applied in a ratings system by private sector ratings entities aimed at offering assessments to countries and other stakeholders.