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disaster recovery; Aceh; tsunami

Disaster risk and climate threats: Taking action to create better financial solutions

Olivier Mahul's picture

As the people of Vanuatu begin the painstaking task of assessing the damage to their homes, businesses, and their communities in the wake of Cyclone Pam, another assessment is underway behind the scenes.

Given the intensity of the category 5 storm and the reports of severe damage, the World Bank Group is now exploring the possibility of a rapid insurance payout to the Government of Vanuatu under the Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI). 

The Pacific catastrophe risk insurance pilot stands as an example of what’s available to protect countries against disaster risks. The innovative risk-pooling pilot determines payouts based on a rapid estimate of loss sustained through the use of a risk model. 

The World Bank Group acts as an intermediary between Pacific Island countries and a group of reinsurance companies – Mitsui Sumitomo Insurance, Sompo Japan Insurance, Tokio Marine and Nichido Fire Insurance and Swiss Re. Under the program, Pacific Island countries – such as Vanuatu, the Cook Island, Marshall Islands, Samoa and Tonga – were able to gain access to aggregate risk insurance coverage of $43 million for the third (2014-2015) season of the pilot. 

Japan, the World Bank Group, and the Secretariat of the Pacific Community (SPC) partnered with the Pacific Island nations to launch the pilot in 2013. Tonga was the first country to benefit from the payout in January 2014, receiving an immediate payment of US $1.27 million towards recovery from Cyclone Ian. The category 5 cyclone hit the island of Ha’apai, one of the most populated of Tonga’s 150 islands, causing $50 million in damages and losses (11 percent of the country’s GDP) and affected nearly 6,000 people.

Globally, direct financial losses from natural disasters are steadily increasing, having reached an average of $165 billion per year over the last 10 years, outstripping the amount of official development assistance almost every year. Increasing exposure from economic growth, and urbanization—as well as a changing climate—are driving costs even further upward. In such situations, governments often find themselves faced with pressure to draw funding away from basic public services, or to divert funds from development programs.


Investing in Innovative Financial Solutions

The World Bank Group and other partners have been working together successfully on innovative efforts to scale up disaster risk finance. One important priority is harnessing the knowledge, expertise and capital of the private sector. Such partnerships in disaster risk assessment and financing can encourage the use of catastrophe models for the public good, stimulating investment in risk reduction and new risk-sharing arrangements in developing countries.

The Caribbean Catastrophe Risk Insurance Facility (CCRIF) is another good example of the benefits of pooled insurance schemes, and served as the model for the Pacific pilot. Launched in 2007, this first-ever multi-country risk pool today operates with sixteen participating countries, providing members with aggregate insurance coverage of over $600 million with 8 payments made over the last 8 years totaling of US$32 million. As a parametric sovereign risk transfer facility, it provides member countries with immediate liquidity following disasters.

We also know that better solutions for disaster risk management are powered by the innovation that results when engineers, sector specialists, and financial experts come together to work as a team. The close collaboration of experts in the World Bank Group has led to the rapid growth of the disaster risk finance field, which complements prevention and risk reduction. 
 

10 Years After the Tsunami: What We Lost and What We Learned

Sri Mulyani Indrawati's picture

What I remember most of the first hours after learning about the tsunami was radio silence. Aceh, it seemed, had ceased to exist. The limited infrastructure in Indonesia’s northernmost province was decimated and none of the survivors was able to update the outside world.
 
To understand the scope of what had happened I flew to Aceh the following day. Since then I have carried with me indelible images of survivors who had nothing left but the clothes on their bodies. There were remnants of lives swept away, of loved ones who disappeared, and a desert of mud and debris beyond repair.
 
The death toll kept on rising for weeks. In the end, of the over 230,000 people who died in 14 countries, 220,000 were from Aceh. We estimated the disaster had caused damage worth $4.45 billion.
 
Ten years after the tsunami, I remember the loss of lives not only as the tragedy it was, but as a moment that changed the way the world manages disasters. I take some consolation from the fact that people survive disasters more often today because of the lessons we learned from the tsunami that affected so many of my fellow Indonesians. 
 
There are three conclusions that are critical to our experience.