Presentation on managing climate risk through ecosystem-based adaptation – linking urban and rural development planning by Jozias Blok, EC International Cooperation and Development

1. Olivier Mahul and Daniel Clarke
Disaster Risk Financing and Insurance Program, FCMNB and GFDRR
The World Bank
Disaster Risk Financing and Insurance Analytics
Financial tools for informed decision making
June 2014
Proposal for a European Union - World Bank/GFDRR Global Partnership on Disaster Risk
Financing and Insurance Analytics

2. Financial protection is a growing pillar in DRM
Pillar 2: Risk Reduction
Pillar 3: Preparedness
Pillar 4: Financial Protection
Pillar 5: Resilient Recovery
Pillar 1: Risk Identification
Improved identification and understanding of
disaster risks through building capacity for
assessments and analysis
Avoided creation of new risks and reduced
risks in society through greater disaster risk
consideration in policy and investment
Improved capacity to manage crises through
developing forecasting and disaster
management capacities
Increased financial resilience of governments,
private sector and households through
financial protection strategies
Quicker, more resilient recovery through
support for reconstruction planning

3. Disaster Risk Financing Analytics
Sovereign Disaster Risk
Financing
Agricultural Insurance Property Catastrophe
Risk Insurance
Disaster-linked Social
Protection
Increase the financial
response capacity of
national and subnational
governments, and their
access to effective
reconstruction and recovery
funding
Protect agricultural
producers from losses
arising from damage to their
productive asset and
livestock
Protect homeowners and
SMEs against losses arising
from property damage
Protect the poorest through
the application of insurance
principles and tools to
social safety nets such as
cash transfer programs
Empowering governments to take informed decisions on the financial management of natural disasters
Financial
Protection
Increasing the financial resilience of governments, private sector and households through
financial protection strategies against the economic and fiscal impact of natural hazards
PILLAR 3 PILLAR 4 PILLAR 5
CROSS
CUTTING
Knowledge and Policy Advising
EVIDENCE
BASE
WB-GFDRR Disaster Risk Financing and
Insurance (DRFI) Program

4. DRFI Analytics Tools:
 Are an effective interface between the policy maker and underlying technical
models.
 Empower decision makers through technical capacity building
DRFI Analytics – helping governments make informed
decisions on financial protection against disasters
Historical loss
data
Macro economic data
Historical loss data
Cat
Risk
Models
Hazard
Vulnerability
Exposure
DRFI Analytics
Cost Benefit
Analysis
Risk Financing
and Insurance
Solutions
Simulated
loss data
Informed
Financial
Decision
Making

5. DRFI Analytics fits within a control cycle
approach to DRFI decision making
Country
specific
DRFI
Analytics
tools
Specify the key DRFI policy
decisions
Analysis and Evaluation of
Proposed Risk Financing
Products/Strategies
Implement and monitor
experience

6. Cost benefit analysis can put $ figures to widely accepted
intuitions
1. Risk transfer is more suited to high layers of risk
2. The value of well-managed risk retention can be very high in some countries
3. Timing is important; relying on slow response ex-post credit for relief and
recovery can lead to very costly delays
4. Post-disaster budget reallocations can be very expensive
5. Transferring catastrophic risk may be cost-effective for some governments
6. Parametric risk transfer can be quick but has a disadvantage of imperfect
payout (basis risk)

7. There are a range of budgetary and financial
instruments available to governments for DRFI
Strategy 1 Strategy 2 Strategy 3
0
50
100
150
200
250
$m
Selected strategy structure Ex-post credit
Insurance
Emergency budget reallocation
Contingent credit
Reserve fund / ex-ante annual
budget allocation
Instruments can be used in isolation or combined to form a layered DRFI strategy

8. Quantitative cost benefit analysis for different strategies can
help strategy selection and instrument prioritization
Strategy 1 Strategy 2 Strategy 3
0
50
100
150
200
250
$m
Annual Average opportunity Cost Ex-post credit
Insurance
Emergency budget reallocation
Contingent credit
Reserve fund / ex-ante annual
budget allocation
$67.1m $66.8m $61.6m
For example, in this case strategy 3 (substantial contingent credit facility) is more
cost effective than strategy 1 (substantial insurance)

9. Example of application of CBA tool: Cost-benefit analyses
of financial options in Mexico
Helping Ministry of Finance improve their DRFI strategy through an optimal combination of
financial instruments: reserves, contingent credit, traditional reinsurance, parametric cat
bond, etc.

10. Contacts
Olivier Mahul
Program Manager
WB GFDRR Disaster Risk Financing and Insurance Program
omahul@worldbank.org
Daniel Clarke
Senior DRFI Specialist
WB GFDRR Disaster Risk Financing and Insurance Program
dclarke@worldbank.org