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Financial Management of Flood Risks in Developing Countries

Financial Management of Flood Risks in Developing Countries. Risk Sharing and Risk Transfer. DISASTER LOSSES ARE ON THE RISE. Source: MunichRe (2000). Country Vulnerability is Key. Countries that can afford their risks, eg Austria

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Financial Management of Flood Risks in Developing Countries

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  1. Financial Management of Flood Risks in Developing Countries Risk Sharing and Risk Transfer

  2. DISASTER LOSSES ARE ON THE RISE Source: MunichRe (2000)

  3. Country Vulnerability is Key • Countries that can afford their risks, eg Austria • Countries that can afford their risks, but with regions that cannot, eg Hungary • Countries that cannot afford their risks, eg El Salvador

  4. Stakeholder Interviews Public Survey • Hydro-Model • One-dimension • Unsteady Flow • Flood Model • GIS-Based • Flood Depth • Loss Model • Agriculture • Infrastructure • Policy Model • Cost-Benefit • Stochastic Opt. Stakeholder Interviews informed by the model Stakeholder Workshop The Upper Tisza Study ___________________________________________________________________________________________________________________

  5. Voluntary private insurance (cross subsidies) Voluntary private insurance(risk based) Government reinsurance (with tax payer support) Voluntary private insurance (cross subsidies) All-hazards private insurance (cross subsidies, government pays premiums for poor) Government compensates victims (percentage of losses) Government compensates victims (fixed amount) Scenario 1 Scenario 2 Scenario 3 Public/Private Insurance System ___________________________________________________________________________________________________________________

  6. (Mitigation) Catastrophe fund Insurance Other hedging instruments, eg Cat bonds Contingent credit Budget diversions Borrowing internal external Loan diversions Taxes Aid Pre- and Post-Disaster Financing Options

  7. Stability vs. Growth

  8. Catch 22 The countries that can benefit from pre-disaster financing instruments are those that can least afford it. Challenge: Can we design new forms of "pre-disaster" aid to developing countries that will • enable them to insure against disaster risks, and • that link this insurance with loss mitigation measures?

  9. Proposal To transfer developing country risks into the global financial markets through • International financial institutions • Private "charitable" investors • Institutional "charitable" investors

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