National Systems and Institutional Mechanisms for the Comprehensive Management of Disaster Risk

1. Regional Policy Dialogue Inter-American Development Bank National Systems and Institutional Mechanisms for the Comprehensive Management of Disaster Risk Paul Freeman, Leslie Martin Nov 15-16, 2001

2. Background • In Latin America and the Caribbean, average frequency of 40 significant disasters a year • Region second only after Asia in the number of disasters impacting the region

3. Vulnerability Disasters due to interaction between human settlement and the natural environment: • Settlement in high-risk areas • Limited enforcement of building codes • Deforestation Reducing the toll of natural disasters requires a comprehensive approach that accounts for the causes of a society’s vulnerability to disasters

4. Comprehensive

5. National Disaster Systems The task facing policy makers today is to create an effective national system • with a comprehensive vision • that engages senior government policy makers, • supports local decision making and initiatives, • and promotes the institutional conditions necessary for the constructive involvement of private-market initiatives

6. Country Experiences • USA, Japan, France, UK: • Successful market-based risk transfer programs • Colombia, Nicaragua • Towards comprehensive government-led systems • Hungary, India • Towards community-driven projects

7. Tradeoffs • Government-directed: • Structural mitigation projects • Reconstruction financing, risk transfer • Bureaucratic • Community-directed • Less comprehensive • Nonstructural mitigation projects • Fewer financing alternatives

8. Successful National Systems • Explicit and appropriate national disaster strategy • integrates with national policy on development and environmental protection • based on vulnerability assessments • Key players part of disaster management process - finance ministry - local community leaders, NGOs - private market actors • Provisions to ensure sufficient resources for key players to carry out their responsibilities

9. National Disaster Strategy • Legislation • Allocating responsibilities • Integrating with development goals • Based on vulnerability assessments

10. Involving Key Players • National Disaster Council: identifies priorities and channels resources • National Disaster Management Office: administers day-to-day operations • Operations Control Group: prepares and coordinates emergency response

11. Role of Finance Ministries Participation of finance ministries: • helps to ensure funding for the institutional framework • facilitates the incorporation of disaster management into development policy • and provides incentives for financing mitigation projects.

12. Financial Resources • On-going operation of a national system • Providing incentives for funding risk mitigation projects • mitigation occurs when the interests of the ultimate risk bearer are aligned with the party incurring the cost of mitigation • Financing post disaster reconstruction • reserve funds • contingent loans • risk transfer (reinsurance, CAT bonds)

13. Risk Transfer In the higher income countries, 30% of the loss from natural hazards is insured. In the poorer countries, insurance covers 1% of the losses from natural hazards

14. Risk Transfer Advantages of insurance: • permits the spreading of risk between parties; guarantees victims compensation for losses • reduces the variance of risk for each person • permits the segregation of risk • encourages loss reduction measures • provides a tool to monitor and control behavior Limitations of insurance • premiums may not reflect risk: less equity and less incentive to mitigate • demand for insurance may be low due to misperceived risk or high discount rates • moral hazard may increase losses • Insurance may not be available in highest-risk areas

15. Political Sustainability • recognized success of the system in reducing vulnerability to and speeding recovery from disasters • integration with overall development goals • legislation supporting the national disaster strategy • programs to maintain an adequate perception of risk, particularly in periods when few disasters happen. • constituencies that support the political agenda needed to implement and carry out a program • frame the natural disaster system as a poverty issue • structures to make different organizations and individuals accountable for their disaster management responsibilities when events strike.

16. Financial Sustainability • Political support • Committing to long-term financing contracts with external parties • Responding to pressure from the international finance community

17. Conclusion • A comprehensive approach requires the commitment of the national government • and accommodates and supports local decision making and initiatives. • That commitment needs the attention of those directing development policies. • As well, the role of risk transfer as a de-centralized, market initiative is important and, in the case of high exposure, will rely on a supporting role by the national government.