The costs of disasters Economic loss in comparison to GDP in SEE countries

1. Seminar on Strengthening Cooperation with the Candidate Countries and Western Balkan Countries in the Field of Civil Protection South Eastern EuropeDisaster Risk Reduction and Adaptation Initiative Paola Albrito UN/ISDR Secretariat - Regional Coordinator Europe and Eugene N. Gurenko, Ph.D., CPCU, ARe Lead Insurance Specialist

2. The costs of disasters Economic loss in comparison to GDP in SEE countries

3. Recurrence of flood events in Europe, 1998-2005

4. SEE governments are fiscally unprepared to deal with catastrophic losses

5. Global Trends - Disasters are NOT natural Natural and human-induced hazards Climate change and variables (global warming and “global dimming”) HAZARDS + EXTREME EVENTS Socio-economic: poverty, unplanned urban growth, lack of awareness and institutional capacities... Physical: insufficient land use planning, housing, infrastructures located in hazard prone areas... Environmental degradation ecosystem degradation; coastal, watershed, marshlands…), etc. VULNERABILITY = Natural hazard X Vulnerability Disaster Risk

6. WHY A NATIONAL PLATFORM? Disaster risk reduction is an issue of great complexity that requires close cooperation among stakeholders representing comprehensive skills and knowledge needed for disaster risk reduction and its mainstreaming into development planning and practice. Therefore Need of: A nationally-owned coordination mechanism (adopting the form of a forum or committee) A participatory process (different sectors’ perspectives and actions, and a multistakeholder composition

7. UN RESOLUTION ON NATIONAL PLATFORMS In 1999,the UN Economic and Social Council, Resolution 1999/63, “called on all Governments to maintain and strengthen established national and multi-sectoral platforms for natural disaster reduction in order to achievesustainable development goals and objectives, with the full utilization of scientific and technical means.” In 2005,the UN General Assembly, resolution A/RES/59/231: “ called upon Governments to establish national platforms or focal points for disaster reduction, encourages government to strengthen platforms where they have already exist, urges United Nations system to provide appropriate support to those mechanisms…” UN RESOLUTION ON NATIONAL PLATFORMS In 2005,the Hyogo Framework for Action 2005-2015: Building the Resilience of Nations and Communities to Disasters One of the Framework strategic goals is the“Development and strengthening of institutions, mechanisms and capacities to build resilience to hazards”. It calls all nations to “Support the creation and strengthening of national integrated mechanisms, such as multisectoral national platforms” to ensure that disaster risk reduction is a national and a local priority.

8. Key Areas of the Initiative: • Hydrological and meteorological forecasting, data sharing and early warning system • Strengthening regional capacities in disaster risk reduction and response • Financing of disaster losses and risk transfer mechanism

9. Partnership WB-UN/ISDR secretariat in partnership with main UN agencies and actors based on the priority areas: • UN Agencies part of the ISDR system: WMO (Strong partner for the Hydromet Component), UNICEF, UNDP etc.. • Regional Organizations: Council of Europe, the EU, DPPI, OECD etc.. • Bi-lateral/Multilateral donors: Denmark, Finland, Switzerland, Italy etc.. (if interest shown by the SEE countries and by donor)

10. Hydrological and Meteorological Forecasting, Data Sharing and Early Warning System • Initiative has been agreed during the ICEED meeting in Dubrovnik in May 2006 • Strong partnership with WMO • Objective of this initiative is to promote a coordinated approach and data sharing in Hydromet services in South Eastern Europe • Feasibility assessment has been completed and was discussed in a regional meeting on October 24-25, 2007 in Zagreb • Coverage: Moldova, Romania, Bulgaria, Serbia, Montenegro, Croatia, Albania, Macedonia, Bosnia & Herzegovina

11. Flood Forecasting and Early Warning System on Sava River • Initiative was agreed during Podgorica meeting of the Directors of Hydromet services in Sava river countries in April 2007. • Objectives is to build capacity and to re-establish data sharing and collaboration on flood forecasting and early warning system on the Sava river. • Feasibility Assessment has been completed and discussed in a regional meeting in Zagreb on October 24-25, 2007.

12. Disaster Risk Reduction and Response • Objectives is to promote and implement investment priorities for strengthening the capacity and promote a coordinated approach to disaster preparedness and response • Will be built on existing agreements: Civil-Military Emergency Planning Council and the Disaster Preparedness Initiative of the Stability Pact • Vulnerability Assessment Desk Review is completed • More detailed assessment of disaster response is needed. Currently working on Civil Protection review.

13. Risk transfer component • Creation of a regional catastrophe insurance pool that would offer affordably-priced catastrophe insurance coverage to homeowners and SMEs in SEE countries. • Development of standardized tradable weather risk hedging instruments to protect businesses against loss of revenue due to adverse weather conditions. • Contingent loan facilities for natural disasters – “A Cat DDO”

14. Schematic allocation of sovereign catastrophe risk by sources of risk financing and available World Bank instruments Available World Bank instruments 200+ year event or in excess of 5% of fiscal revenue Emergency reconstruction loans Donor aid 100-200 year event or in excess of 5% of fiscal revenue Catastrophe bonds for sovereigns Catastrophe bonds 30-100 year event or in excess of 5% of fiscal revenue Catastrophe risk insurance pools Reinsurance 30 year event or up to 5% of fiscal revenue Disaster Draw-Down Option loans Risk financing 20 year event or up to 3% of fiscal revenue Risk retention

15. Deferred Draw-Down Option Loan for Natural Disasters (DDO) • Will provide immediate liquidity to fill the budget gap in the aftermath of natural disasters. • Disburses under pre-defined conditions such as declaration of national emergency by government. • Certainty of disbursement • Highly affordable pricing. • Prerequisites: • Sustainable debt level • Satisfactory macroeconomic framework • Satisfactory emergency budget appropriation legislation/system in place • Completion of a risk assessment program and preparation of a hazard risk mitigation strategy • Could be used to support gov’t recovery programs or gov’t backed insurance

16. Risk transfer solutions for homeowners and SMEs Proposed South Eastern Europe Regional Catastrophe Insurance Facility Catastrophe insurance coverage against the risks of flood and quake for homeowners and SMEs Reinsurers Premium 2 SEE Home owners Sum Insured SERCIF Premium 3 Protection Protection Special Purpose Vehicle Investors SEE countries Libor+Spread Contingent Credit Facility Bond principal Spread IBRD 1. 2. 3. IBRD provides advisory support to SEERCIF member countries in structuring and launching the facility. SEE households buy a SEERCIF insurance policy by paying an annual premium for its cover. The facility retains a part of risk relying on IBRD contingent capital to pay small claims. In the absence of claims it accumulates reserves. The facility transfers most of risk to reinsurance and capital markets either through a reinsurance contract or by issuing a cat bond. Advisory support 1

17. Hedging weather exposure of businesses to weather in SEE Buyers of weather risk protection Sellers of weather risk protection SEE metservices Electronic portal Weather reference indices (temperature, precipitation, wind) Risk management advisor to SMEs

18. Next steps • Establish the insurance facility in one of the EU countries • Obtain expressions of interest for participation in the program from SEE client countries. • Prepare individual country projects. • Commence program implementation.

19. Thank you