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Risk Governance: the challenge of risk transfer instruments and catastrophic events
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Risk Governance: the challenge of risk transfer instruments and catastrophic events

Risk Governance: the challenge of risk transfer instruments and catastrophic events

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  • How can the government offer financial support? Which party should the government subsidize? Should the government give money (directly) to insurance companies, reinsurers, or insuree? Which way is the most efficient? How to determine the burden distribution between the government and insurance companies? Policy insurance: large coverage / high penetration rate Insurance companies:

Risk Governance: the challenge of risk transfer instruments and catastrophic events Presentation Transcript

  • 1. RISK GOVERNANCE THE CHALLENGE OF RISK TRANSFER INSTRUMENTS AND CATASTROPHIC EVENTS OSCAR GUEVARA MSc, Ma, PgDip Lecturer El Rosario University, Faculty of Urban Planning and Development, Bogota - Colombia Lecturer, Los Andes University, Faculty of Economics, Bogota - Colombia IDRC – DAVOS 2010 OSCAR GUEVARA [email_address]
  • 2. THE FUNDAMENTAL QUESTION
    • WHAT WE KNOW?
    • WHAT WE DONT KNOW?
    • ABOUT THE COST OF FUTURE DISASTERS…..
    • ……… AND WHO WILL PAY FOR THEM
    • THE CASE STUDY OF BOGOTA CITY
    IDRC – DAVOS 2010 OSCAR GUEVARA [email_address]
  • 3. (1) WHAT WE KNOW IDRC – DAVOS 2010 OSCAR GUEVARA [email_address]
  • 4. (1) WHAT WE KNOW IDRC – DAVOS 2010 OSCAR GUEVARA [email_address] Knowledge Mitigation Emergency Preparedness Post Disaster Reconstruction Risk Transfer Earthquakes HAZARD MAPS MICROZONIFICATION OF THE CITY LOCAL EFFECTS STUDIES ADOPTION OF HAZARD MAPS IN LAND USE CODES AND PLANS
  • 5.  
  • 6. (1) WHAT WE KNOW IDRC – DAVOS 2010 OSCAR GUEVARA [email_address] Knowledge Mitigation Emergency Preparedness Post Disaster Reconstruction Risk Transfer Earthquakes
    • BUILDING CONSTRUCTION CODES ( 1986 – 1998 – 2009)
    • REINFORCEMENT OF ALL “LEVEL ONE” PUBLIC FACILITIES ( I.E. HOSPITALS, SCHOOLS)
  • 7. (1) WHAT WE KNOW Knowledge Mitigation Emergency Preparedness Post Disaster Reconstruction Risk Transfer Earthquakes Risk Scenario Day Night Casualties 55.532 33.629 Injures 148.074 110.278
  • 8. (1) WHAT WE KNOW IDRC – DAVOS 2010 OSCAR GUEVARA [email_address] PERCENTAGE OF DESTROYED AREAS 10 % E2 SCENARIO Knowledge Mitigation Emergency Preparedness Post Disaster Reconstruction Risk Transfer Earthquakes RISK SCENARIO U$ M E1 14.000 E2 8.800 E3 5.100
  • 9. (1) WHAT WE KNOW Pakistan - 2005 Colombia . Pizarro 2004 Colombia . Armenia 1999 Haiti - 2010 IDRC – DAVOS 2010 OSCAR GUEVARA [email_address] AN EXPECTED COMBINATION OF SCENARIOS LEADS TO A RISK GOVERNANCE DECISION COMPULSORY INSURANCE (EARTHQUAKES AND FIRES)
  • 10. THE FUNDAMENTAL QUESTION
    • WHAT WE KNOW?
    • ABOUT THE COST OF FUTURE DISASTERS…
    • ( 1.000 – 1.500 U$M)
    • AND WHO WILL PAY FOR THEM
    • (PRIVATE LOSSES WILL BE PARTIALLY ASSUMED THROUGH A RISK TRANSFER INSTRUMENT)
    IDRC – DAVOS 2010 OSCAR GUEVARA [email_address]
  • 11. WHAT WE EXPECT A MARKET SOLUTION BASED ON A SUPPLY AND DEMAND SCHEME TOTAL CONTRUCTED AREA (*) 181 Millones de M2 TOTAL PROPERTIES 900.000 INSURABLE PROPERTIES(**) 200.000 TOTAL INSURABLE AREA (**) 41,5 Millones DE M2 INSURABLE VALUE 20.000.000 COL $ M - 10.000 U$M INSURABLE VALUE 8.000.000 COL $ M - 4.000 U$M EXPECTED ANNUAL RATES 40.000 COL$M - 20U$M EXPECTED ANNUAL RATES 16.000 COL$M - - 8U$M
  • 12. WHAT WE DON´T KNOW
    • IS NOT WORKING - MARKET PENETRATION OF ABOUT 10% )
    • HOW TO MAKE IT “MANDATORY”?
    • WHO PUNISHED THE UNINSURED? HOW?
    • PROPERTIES ARE NOT BEING PROPERLY INSURED
    RISK GOVERNANCE DECISION COMPULSORY INSURANCE (EARTHQUAKES AND FIRES)
    • COST OF FUTURE DISASTERS
    • WHO WILL PAY FOR THEM
    INCENTIVES ARE NOT PUT IN PLACE !
  • 13. THE LEGO THEORY OF RISK TRANSFER INSTRUMENTS
  • 14. THE LEGO THEORY OF RISK TRANSFER INSTRUMENTS
  • 15. THE LEGO THEORY OF RISK TRANSFER INSTRUMENTS FINANCE RECONSTRUCION (BUY LEGO BUCKETS) FINANCE RECONSTRUCION (BUY LEGO HOUSES)
  • 16. THE EMPIRICAL DATA RISK GOVERNANCE PRATICE PROPOSED BY THE NATIONAL LAW TRADITIONAL AND CURRENTLY IMPLEMENTED COMMERCIAL PRACTICE L OW INCOME HOUSEHOLDS MIDDLE INCOME HOUSEHOLDS HIGH INCOME HOUSEHOLDS AVERAGE COMMERCIAL VALUE OF A 100 M2 PROPERTY 40k – 50k U$ 236 % 100k – 120k U$ 244% > 150k U$ 300% AVERAGE RECONSTRUCION VALUE OF A 100 M2 PROPERTY 18k – 20k U$ 40k – 50k U$ 60k – 75k U$
  • 17. INCONSISTENT RISK GOVERNANCE GOVERNMENT WANTS TRANFER PRIVATE LOSSES TO HOUSE OWNERS , THROUGH COMPULSORY INSURANCE GENERAL PUBLIC DEMANDS CEDE PRIVATE LOSSES TO INSURANCE COMPANIES, TROUGH A INSURANCE CONTRACT INSURANCE SECTOR IS OFFERING SATISFY DEMAND OF A “POLICY DRIVEN” COMMERCIAL PRODUCT
  • 18. WHAT WE DON´T KNOW
    • INCENTIVES ARE NOT PUT IN PLACE
    • THE ECONOMIC MARKETS REACTS TO THE LAW WITH THE LOWEST PERFORMANCE REQUIRED ( JUST OBTAIN AN INSURED VALUE )
    • EXPECTED BENEFICIARIES REACTS TO THE LAW WITH THE LOWEST PERFORMANCE REQUIRED ( JUST DECLARE AN INSURED VALUE)
    • ABSCENCE OF ADEQUATE UNDERWRITING, RISK ASSESSMENTS OR INCENTIVES FOR MITIGATION ACTIONS
    RISK GOVERNANCE DECISION COMPULSORY INSURANCE (EARTHQUAKES AND FIRES)
    • COST OF FUTURE DISASTERS
    • WHO WILL PAY FOR THEM
  • 19. AND ADDING MORE COMPLEXITY
    • EVIDENCE SHOWS THAT MARKETS CAN BE SERIOUSLY AFFECTED BY CATASTROPHIC EVENTS:
      • INFLATIONARY PROCESS
      • SCARCITY OF GOODS AND LABOUR
      • DAMAGE INSPECTION
      • CLAIM PROCESS
    IDRC – DAVOS 2010 OSCAR GUEVARA [email_address]
  • 20.
    • THE RECONSTRUCTION PROCESESS CAN BE A SECOND DISASTER IF THERE IS A LACK OF UNDERSATING OF PUBLIC / PRIVATE, AND INSURED/ UNINSURED RISKS.
    • POLICY DRIVEN MEASURES MUST BE REINFORCED BY A RIGUROUS FOLLOWING OF THE COMPREHENSION AMONG STAKEHOLDERS.
    • COMPLEXITY OF AN INSURANCE / ECONOMIC TRANSACTION CAN´T BE SOLVED IN THE AFTERMATH OF A DISASTER.
    • ECONOMIC INSTRUMENTS DEMANDS WILLINGS TO PAY, WELFARE , MARKET ASSESSMENTS AND OTHER COMPLEMENTARY STUDIES TO ENHANCE IS ACCEPTANCE AND EFFICIENCY
    CONCLUSIONS ( LESSONS TO BE LEARNED)
  • 21.  
  • 22.  
  • 23. Fotos: Gustavo Wilches-Chaux
  • 24. Fotos: Gustavo Wilches-Chaux
  • 25.  
  • 26. Fotos: Gustavo Wilches-Chaux
  • 27. THANK YOU OSCAR GUEVARA MSc, Ma, PgDip [email_address] IDRC – DAVOS 2010 OSCAR GUEVARA [email_address]