- Email: [email protected]
Disaster risk management: Pro-active financing to reduce vulnerability
ARTICLE IN PRESS
Environmental Hazards 7 (2007) 1–6 www.elsevier.com/locate/hazards
Editorial
Disaster risk management: Pro-active financing to reduce vulnerability 1. Background Recent events, like the Indian Ocean tsunami, catastrophic flooding in Guatemala, the Kashmir earthquake and Hurricane Katrina, have had staggering human, economic and environmental consequences, and contributed to the alarming upward trend in disaster losses. Over the period 1984–2003, more than 4 billion people were affected by natural disasters, and between 1990 and 1999 the costs of disasters (in constant dollars) were more than 15 times higher than during the period 1950–59 (World Bank, 2006). The dominant factors behind rising losses are changes in land use and increasing concentration of people and capital in high-risk areas, for example, in coastal regions exposed to windstorms, in fertile river basins exposed to floods, and in urban areas exposed to earthquakes (Miletti, 1999). Although the rise in disaster losses today is largely driven by socio-economic factors, there is mounting evidence of a significant climate-change signal in disaster events (Scho¨nwiese et al., 2003; Emanuel, 2005). The United Nations Intergovernmental Panel on Climate Change recently reported observations of long-term and widespread changes in wind patterns and aspects of extreme weather including droughts, heavy precipitation, heat waves and the intensity of tropical cyclones (IPCC, 2007). The focus of this volume is on natural disasters as they affect the poor and vulnerable in developing countries, who disproportionately bear the human and economic burdens. In the past quarter century over 95% of disaster deaths occurred in developing countries, and direct economic losses as a share of national income were more than double in low-income versus high-income countries (Arnold and Kreimer, 2004). There are many reasons for this. Economic circumstances force many to live and work in high-risk areas, and regulations on land use and construction are lax and often not enforced. Early warning often does not reach the most vulnerable, who may ignore warnings in fear of deserting livestock and other possessions. Moreover, the statistics do not record the longer-term losses in lives and livelihoods due to the inability of developing country governments and their citizens to finance the recovery process. Disasters exacerbate poverty as victims take out highinterest loans, sell assets and livestock, or engage in low-risk, 1747-7891/$ - see front matter r 2007 Elsevier Ltd. All rights reserved. doi:10.1016/j.envhaz.2007.04.001
low-yield farming to lessen exposure to extreme events. Without a post-disaster infusion of capital for reconstruction, disasters can also exacerbate poverty by their longterm adverse effects on economic development. As a case in point, 4 years after the devastation of Hurricane Mitch in 1998, the GDP of Honduras was 6% below pre-disaster projections (Mechler, 2004), and according to Honduras’ Poverty Reduction Strategy Paper the disaster resulted in an increase of 165,000 poor people (Government of Honduras, 2001). The exposure of developing country populations and their institutions to natural hazards is thus becoming an important component of international development and aid strategies, as well as an important consideration in adapting to climate change. Since most hazard-related aid is triggered by specific events and the need for rapid postdisaster humanitarian response, only limited resources have been available to achieve natural disaster risk reduction ex ante. Ex post disaster aid is essential for humanitarian purposes, but its rapid dispersal may miss opportunities to achieve risk reduction. The Hyogo Framework of 2005 (UNISDR, 2005) concludes that natural hazard risk reduction should be a core component of economic development assistance, and that attention should be directed to financial strategies that hold promise for reducing the burdens on the poor. It is not only the disaster and development communities that are turning their attention to ex ante financial solutions. The U.N. Framework Convention on Climate Change (UNFCCC) calls upon Parties to consider a number of financial and other measures, including insurance instruments, to meet the needs of developing countries in adapting to climate change impacts (Linnerooth-Bayer et al., 2003). Several innovative proposals for assisting developing country risk transfer and insurance have recently been put forward (Bals et al., forthcoming; Linnerooth-Bayer and Mechler, forthcoming). With a focus on developing country risks, the intent of this volume is to explore new directions in pro-active disaster financing that can reduce disaster-related risk and vulnerability, and help alleviate poverty. The papers in this volume address issues that are highly topical to the development, disaster and climate-change communities: risk and vulnerability assessment, financial risk services
ARTICLE IN PRESS Editorial / Environmental Hazards 7 (2007) 1–6
2
and transfer, and catastrophe insurance for the poor. In discussing these issues, the authors take up the following questions:
Risk and vulnerability assessment: What regions and localities are most at risk from extreme events of natural origin? Which regions/localities are most vulnerable in terms of their ability to reduce risks, share losses and otherwise cope with shocks? Can risk and vulnerability be measured? Financial risk services and transfer: What role can financial services at the community level, including access to banks, loans and facilitation of remittances, play in preventing disasters and facilitating recovery? How can highly exposed governments take advantage of novel risk transfer instruments to reduce their financial vulnerability to disasters? Catastrophe insurance for the poor: Do insurance programs, and particularly donor-supported public–private programs, have a role to play in providing disaster safety nets to the poor? What are the advantages and disadvantages of recent and innovative index-based insurance instruments for providing protection to farmers against droughts, floods and other weather-related disasters? Can China, as one of the most exposed and vulnerable countries in the world, make use of catastrophe insurance instruments?
The conceptual and applied analyses of this special edition were first presented at the 2005 annual IIASADPRI Forum organized by the International Institute for Applied Systems Analysis (IIASA), the Disaster Prevention Research Institute of Kyoto University (DPRI) and Beijing Normal University (BNU). One purpose of this annual forum is to address disaster vulnerability, which by considering the social, economic and ecological system, as well as multiple stresses and system resilience, is conceptually more complex than risk. Tackling this complexity has been one of the fundamental challenges of the IIASA-DPRI Forum and the papers in this volume. 2. Contents The seven papers summarized below collectively address the above issues and related questions with regard to the assessment and management of disaster risk and vulnerability in the developing world. 2.1. Risk and vulnerability assessment 2.1.1. What regions and localities are most at risk from extreme events of natural origin? It is important to establish the factual basis upon which international development and climate-adaptation organizations, among others, should develop policies supporting sustainable natural hazard risk reduction and transfer. The current emphasis on a risk-based decision process,
combined with an appreciation of local circumstances and institutional capacity, necessitates risk comparisons across regions or nations. Without these comparisons, it is difficult to prioritize the geographic focus of risk reduction or financial strategies, or position them within broader development and poverty alleviation goals. Comparisons are difficult, however, without a systematic approach both to the methodologies of natural hazard risk assessment and the underlying observations of natural hazard occurrence, severity and direct and indirect losses. The ‘‘hotspots project’’ described by Arthur Lerner-Lam in his paper titled ‘‘Assessing Global Exposure to Natural Hazards: Progress and Future Trends’’ estimates global natural disasters risks in terms of their mortality and economic losses. The methodology combines hazard exposure with historical vulnerability for two indicators of elements at risk—population and Gross Domestic Product (GDP) per unit area—for six major natural hazards, and decomposes the estimation at sub-national scales. Such information can be useful for informing a range of disaster prevention and preparedness measures, including prioritization of resources, targeting of more localized and detailed risk assessments, implementation of risk-based disaster management and emergency response strategies, and development of long-term land-use plans and multi-hazard risk management strategies. The hotspots approach is being used in several forums to support enhanced risk reduction and risk-transfer efforts and the ‘‘mainstreaming’’ of mitigation within development strategies. However, as the author and others (see Dilley, 2006) make clear, the historical completeness, availability and quality of global hazard, vulnerability and loss data make it difficult to provide a complete prescriptive assessment of risk. The calculations underlying global natural hazard risk mapping depend on the availability and quality of geophysical and socio-economic data, which are highly variable from region to region, and may impede the application of global rankings to regional decision making. The research points to specific needs for more research, standardized data acquisition and more highly resolved regional and sub-national analyses. The author suggests the possibility of a new class of regional studies combined in a global synthesis, making global priority setting for risk reduction and risk financing more effective. 2.1.2. Which regions/localities are most vulnerable in terms of their risk exposure, and including their ability to cope with this exposure by reducing and sharing losses? Can we measure risk and vulnerability? Information on hazards and risks is crucial, but insufficient to fully guide policies targeted to reduce the natural hazard burden on the poor. Enhancing disasterrisk reduction before a disaster occurs, and also during the reconstruction process, requires enhanced knowledge regarding the most vulnerable groups, the areas at risk
ARTICLE IN PRESS Editorial / Environmental Hazards 7 (2007) 1–6
and also the driving forces that influence and generate risk and vulnerability. The question is whether this knowledge can be quantified. Empirical indicators of risk and vulnerability have been developed on different scales and for different purposes. For example, the hotspots project described above is one quantitative measure of risk on a global scale. In his paper titled ‘‘Risk and Vulnerability Indicators at Different Scales: Applicability, Usefulness and Policy Implications’’ Joern Birkmann compares the hotspots approach with the Disaster Risk Index (DRI) (Peduzzi, 2006) and the Americas Indexing Programme (Cardona, 2006), both of which measure disaster risk and some aspects of risk management performance. In addition, the author juxtaposes these global measures of risk and vulnerability with a selected local approach, the Community DRI, to underline the differences. The four approaches are examined according to their applicability, usefulness and policy implications. Since the assessment and mapping of human vulnerability is less developed than hazard assessment, this paper focuses in great depth on how the approaches capture vulnerability. The hotspots and DRI concepts mainly measure risk exposure, whereas the Americas Project includes elements of coping capacity and resilience. The capacity of households and communities to cope with disasters and restore their livelihoods and lives can be assessed more accurately at the community level. Thus the Community DRI incorporates more detailed measures of coping capacity and ability to respond. According to the author, however, none of the risk and vulnerability studies adequately capture environmental and institutional aspects of disaster vulnerability, or medium- and long-term adaptation. The different scale measurements clearly impose both opportunities and constraints on their usefulness in setting risk management priorities. The paper concludes with the importance of viewing risk and vulnerability assessment as a process for which quantitative measures and instruments contribute useful, but inexact, knowledge to help guide the discourse, but not to fully determine the outcome. 2.2. Financial risk services and transfer 2.2.1. What role can financial services at the community level, including access to banks, loans and insurance, play in preventing disasters and facilitating recovery? In developing countries, households provide most of the financial and other resources for private-sector disaster response—mainly through consumption of available resources or savings (Dannenmann and Warner, 2004). The alternative includes arrangements that involve reciprocal exchange such as kinship ties and community self help. Despite their limitations, Cohen and Sebstad (2003) claim that savings and informal pooling arrangements work reasonably well for less severe and idiosyncratic shocks. Yet, they are inadequate and inappropriate for large
3
catastrophes that deplete assets and savings and that affect people throughout a region or country. Without reciprocal support or outside aid, disasters can lead to a ‘‘cycle of poverty’’ as victims take out high-interest loans (or default on existing loans), sell assets and livestock, or engage in low-risk, low-yield farming to lessen exposure to extreme events (Siegel, 2005). Increased attention has thus been given to the possible role of financial services, including banking and insurance, in reducing disaster-related poverty (Mechler et al., 2006). In their paper titled ‘‘Financial Services and Disaster Risk Finance: Examples from the Community Level’’ Koko Warner, Laurens Bouwer and Walter Ammann describe four different risk financing initiatives aimed at reducing the vulnerability of poor communities to disaster risks: (1) public social investment funds in El Salvador that provide rapid assistance to poor communities as well as resources for small construction projects, such as retrofitting or adaptation of structures for extreme weather conditions; (2) a risk reduction and risk pooling/insurance scheme for the city of Manizales, Colombia, that finances risk reduction and reconstruction; (3) the DHAN Foundation initiatives in India to help disadvantaged people organize community groups for risk management purposes; and (4) programs by micro-finance institutions (MFIs), like Opportunity International, that provide a variety of financial services to help groups better manage their disaster risks and thus improve their creditworthiness. The paper offers an overview of advantages and limitations of these initiatives and specific suggestions for public- and private-sector actors, and other partners, to improve alternatives for financial disaster risk management at the community level. 2.2.2. How can highly exposed governments take advantage of novel risk-transfer instruments to reduce their financial vulnerability to disasters? With a large portfolio of infrastructure assets and responsibility to provide post-disaster assistance to the poor, governments of highly exposed developing countries can be highly vulnerable to disasters. If governments do not have the necessary infusion of capital after a disaster to rebuild critical infrastructure and assist households and businesses, the result is delays in recovery leading to secondary economic and social effects, such as deterioration in trade, budget imbalances and increased incidence of poverty (Linnerooth-Bayer et al., 2005). In the past, postdisaster sources of finance in developing countries have been woefully inadequate to assure timely relief and reconstruction. For example, 2 years following the 2001 earthquake in Gujarat, India, assistance from a government reserve fund and international sources had reached only 20% of original commitments (World Bank, 2003). International support for the India Ocean tsunami was exceptional with estimates of about $7000 per affected victim, which can be compared with the devastating floods affecting Bangladesh in 1998, where support was estimated
ARTICLE IN PRESS 4
Editorial / Environmental Hazards 7 (2007) 1–6
at about $3 per affected victim (Tsunami Evaluation Coalition, 2006). Rather than relying fully on ad hoc aid, there are innovative prospects for governments to assure sufficient post-disaster capital by managing their financial risk exposure. In their paper titled ‘‘Sovereign Financial Disaster Risk Management: The Case of Mexico’’ Victor Cardenas, Reinhard Mechler, Stefan Hochrainer, Georg Pflug and Joanne Linnerooth-Bayer discuss selected ex ante financing arrangements to assure post-disaster liquidity for developing country governments, including catastrophe reserve funds, contingent credit contracts and catastrophe bonds (a catastrophe bond is an instrument whereby the investor receives an above-market return when a specific catastrophe does not occur in a specified time, e.g., an earthquake of magnitude 7.0 or greater on the Richter scale in the vicinity of Mexico City over a 1-year period, but sacrifices interest or part of the principal following the event). The government’s disaster risk is thus transferred to international financial markets that have many times the capacity of the reinsurance market. In 2006, Mexico became the first middle-income developing country to transfer part of its public sector natural catastrophe risk to the international markets through conventional reinsurance and a novel catastrophe bond. The Mexican case will assure the government of sufficient post-disaster capital to provide emergency relief, repair public infrastructure and assist the low-income population in the case of a major earthquake. The costs of financial instruments, including the Mexican transaction, however, can greatly exceed expected losses, and for this reason it is important to examine their benefits and alternatives. This paper analyzes the Mexican case from the views of the Ministry of Finance and Public Credit (the risk cedent) and analysts at the International Institute for Applied Systems Analysis (IIASA), which provided economic analyses informing the decision. The paper scrutinizes the choice the authorities faced between the two different risk-transfer instruments: reinsurance and a catastrophe bond. The analysts conclude that the catastrophe bond is costly (significantly above expected losses) but in comparison to the reinsurance contract, it avoids the risk of non-payment of claims from insurer insolvency. The Mexican case is of considerable interest to highly exposed transition and developing countries, many of which are considering similar transactions. 2.3. Catastrophe insurance for the poor 2.3.1. Do insurance programs, and particularly donorsupported public–private programs, have a role to play in providing disaster safety nets to the poor? In most wealthy developed countries, the state and private insurers, either acting alone or in partnership, provide safety nets for victims by providing post-disaster assistance and monetary compensation. Yet, traditional government–insurer (public–private) partnerships as they
exist in the developed world are generally inadequate for providing security against financial shocks in highly exposed low- and middle-income developing countries. Households, farmers and businesses in these countries cannot easily afford commercial insurance to cover their risks, even if it is offered and backed by the government. Nor can they rely on public support since governments of highly exposed developing countries are frequently strapped for cash after major disasters. This is the case even accounting for discretionary domestic and international aid, which with rare exceptions (e.g., the 2005 Indian Ocean tsunami) does not fully cover the financing needs for emergency relief and reconstruction. In their paper, titled ‘‘Disaster Safety Nets for Developing Countries: Extending Public-Private Partnerships’’, Joanne Linnerooth-Bayer and Reinhard Mechler examine recent innovations in financial management regimes that go beyond traditional public–private partnerships. Extended partnerships can include the government and private insurers, and also NGO’s, international financial institutions and other donors. The authors illustrate with three examples: the Turkish Catastrophe Insurance Pool, the Andhra Pradesh Disaster Microinsurance Scheme, and the Malawi index-based loan-insurance pilot project. These extended partnerships are providing safety nets to developing country households and communities at risk to major shocks to their lives and livelihoods. Importantly, they provide secure financial arrangements to low-income communities before disasters strike and, among many other benefits, they relieve the uncertainty and anxiety of depending on ad hoc post-disaster aid for recovery and even survival. The authors caution, however, about the many possible pitfalls in establishing these systems on a wide scale. 2.3.2. What are the advantages and disadvantages of recent innovative index-based insurance instruments for providing protection to farmers against droughts, floods and other weather-related disasters? More than 40% of farmers in developing countries face threats to their livelihoods from adverse weather, which destabilizes households and creates food insecurity (World Bank, 2005). In the Southern African Development Community (SADC), as a case in point, floods, cyclones and droughts have been a major cause of hunger affecting more than 30 million persons since 2000. Governments and donors react to these shocks rather than pro-actively managing the risks. These emergency reactions have been criticized for being ad hoc, sometimes untimely and destabilizing local food markets (Hess and Syroka, 2005). The alternative includes measures to prevent the risks and insurance instruments (made affordable to the poor) for decreasing farmer vulnerability. While many high-income countries have long standing agricultural insurance programs, Hector Ibarra and Jerry Skees in their paper titled ‘‘Innovation in Risk Transfer for Natural Hazards Impacting Agriculture’’ argue that these
ARTICLE IN PRESS Editorial / Environmental Hazards 7 (2007) 1–6
programs are not appropriate for low-income countries. Still, low-income countries usually have large numbers of small and vulnerable farms that could benefit from agricultural insurance to protect against common problems that create disastrous losses. Building systems whereby insurance transfers highly correlated and catastrophic losses out of the community, and banks and non-banking institutions facilitate savings and borrowing to assist in coping with more frequent and less severe events, is, according to the authors, at the core of designing effective public–private systems for agricultural output risk. An innovative alternative to traditional indemnity-based agricultural insurance is index-based insurance, which is a contingent contract with a payoff determined by prespecified extreme events, for example, a specified lack of precipitation recorded at a weather station. Farmers collect an insurance payment if the index reaches a certain measure or ‘‘trigger’’ regardless of actual losses. The authors provide an overview of traditional indemnitybased agricultural insurance, and discuss the lessons learned from recent pilot index-based insurance for managing agricultural production risk. Focusing on experience in North America, the authors conclude that indemnity-based insurance is not appropriate for developing country farmers for the main reason that they can ill afford the subsidies inherent in most multiple peril crop insurance programs. In addition, the transaction costs from extensive claims handling would result in unaffordable premiums. The paper then introduces innovations—that can be financed through extended public-private partnerships—using index-based insurance products. These products hold promise for lower-income countries with large numbers of small farm households, yet it is important to consider both their advantages and disadvantages for each specific context. 2.3.3. Can China, as one of the most exposed and vulnerable counties in the world, make use of catastrophe insurance instruments? China has large exposure to all types of hazards, including typhoons, floods, landslides, and earthquakes. The government recognizes that progress on disaster risk reduction will require a long-term commitment, and the aim is to build disaster resilient communities by promoting increased awareness of the importance of disaster reduction as an integral component of sustainable development. As an example, after the disastrous Yangtze River floods in 1998 the Chinese government banned logging in the upper watershed and increased reforestation efforts and prohibited additional land reclamation projects through several relevant legislations. Despite extensive attempts to reduce flood risks with reforestation, the main mitigation measures in China (not only for floods) have been structural, for example during the past half century China has constructed 84,000 reservoirs and 12,000 km of barrages (CPCU, 2003). This is not surprising given China’s population density and limited arable land
5
making it difficult for the authorities to fully restrict development in high-risk areas. Despite these measures, Chinese authorities recognize that risks are rising because of such factors as escalating capital investments, increased migration to the coast, and climate change (Peng, 1997). The national authorities are looking thus to insurance instruments—and public–private arrangements—to help the exposed public cope with floods and other extremes. This volume includes a transcript of the opening lecture by Peter Forstmoser titled ‘‘Outlook for Innovative Insurance Instruments in China.’’ This talk examines China’s historical exposure to natural hazards, and points out that only a small part of the economic loss is insured today. Swiss re-estimates that well below 5 percent of the total economic loss would be insured if a large earthquake were to strike Beijing. The speaker asks whether insurers can cope with this large loss potential, and whether comprehensive catastrophe insurance is possible or even advisable in China. The paper concludes optimistically by discussing the potential to pool China’s risks by setting up layered (public–private) insurance systems. The speaker is convinced that improving China’s ability to cope with large catastrophes will reinforce social stability, economic growth and development in China. 3. Conclusions As the disaster, development and climate-change communities consider reallocating resources from post-disaster relief to pro-active risk prevention and financing, the papers in this volume provide conceptual and practical analyses that can guide policy makers in reducing vulnerability to those most at risk. The policy solutions combine governmental actions with market mechanisms supported by NGOs and international financial institutions and donors—extended public–private partnerships. The comparative risk estimates of the Hotspots Project and methodologies for assessing developing country vulnerability can help set priorities for national and international risk reduction and transfer programs. The emergence of novel risk-financing and risk-transfer instruments, including catastrophe bonds and indexed weather insurance, and novel risk-transfer regimes, which extend partnerships beyond the government and private sector, provides new opportunities for pooling and transferring these risks. Moreover, there may be formal ways of tying insurance and other risk-transfer schemes with the mitigation of risks. As the papers demonstrate, experience with pro-active disaster risk management is still in the early stages, but recent pioneering efforts are demonstrating its substantial potential. By documenting this experience, and moving beyond experience to suggest new opportunities, the authors in this volume will contribute to reducing the burdens disasters place on the vulnerable in the developing world.
ARTICLE IN PRESS 6
Editorial / Environmental Hazards 7 (2007) 1–6
References Arnold, M., Kreimer, A., 2004. The socio-economic costs of disasters. In: Mathur, A., Burton, I., van Aalst, M. (Eds.), An Adaptation Mosaic: An Example of Emerging Bank Work in Climate Change Adaptation, Final Draft, Washington DC, World Bank Global Climate Change Team, The World Bank, pp. 5–14. Bals, C., Butzengeiger, S., Werner, K., forthcoming. Insuring the uninsurable: design options for a climate change funding mechanism. In: Gurenko E. (Ed.), Climate Policy, Special Issue on Insurance and Climate Change. Cardona, O.D., 2006. A system of indicators for disaster risk management in the Americas. In: Birkmann, J. (Ed.), Measuring Vulnerability to Natural Hazards—Towards Disaster Resilient Societies. UNU-Press, Tokyo, New York, Paris. Cohen, M., Sebstad, J., 2003. Reducing Vulnerability: The Demand for Microinsurance. MicroSave-Africa, Africa. CPCU, 2003. Managing flood losses: an international review of mitigation and financing techniques, Part I. CPCU Journal (Fall), 75–93. Dannenmann, S., Warner, K., 2004. Solidarity and opportunity: the potential of insurance for disaster risk management in developing countries. Conference Proceedings and Workshop Report. ProVention Consortium, October 2004, Zurich. Dilley, M., 2006. Disaster risk hotspots: a project summary. In: Birkmann, J. (Ed.), Measuring Vulnerability to Natural Hazards: Towards Disaster Resilient Societies. United Nations University Press, Tokyo, pp. 182–188. Emanuel, K., 2005. Increasing destructiveness of tropical cyclones over the past 30 years. Nature 436, 686–688. Government of Honduras, 2001. Poverty Reduction Strategy Paper. The World Bank, Washington, DC. Hess, U., Syroka, J., 2005. Weather-based insurance in Southern Africa: The Case of Malawi. Agriculture and Rural Development Discussion Paper 13, Washington DC, The World Bank. Intergovernmental Panel on Climate Change (IPCC), 2007. Climate change 2007: the physical science basis, summary for Policymakers. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change /http://www.ipcc.ch/ SPM2feb07.pdfS. Linnerooth-Bayer, J., Mechler, R., forthcoming. Insurance for assisting adaptation to climate change in developing countries: a proposed strategy. In: Gurenko, E. (Ed.), Climate Policy, Special Issue on Insurance and Climate Change. Linnerooth-Bayer, J., Mace, M.J., Verheyen, R., 2003. Insurance-Related Actions and Risk Assessment in the Context of the UN FCCC /http:// unfccc.int/sessions/workshop/120503/documents/background.pdfS. Linnerooth-Bayer, J., Mechler, R., Pflug, G., 2005. Refocusing disaster aid. Science 309 (5737), 1044–1046. Mechler, R., 2004. Natural Disaster Risk Management and Financing Disaster Losses in Developing Countries. Karlsruhe, Verlag fu¨r Versicherungswissenschaft.
Mechler, R., Linnerooth-Bayer, J., Peppiatt, D., 2006. Microinsurance for natural disasters in developing countries: benefits, limitations and viability. Geneva, ProVention Consortium. /http://www.proventioncon sortium.org/themes/default/pdfs/Microinsurance_study_July06.pdfS. Miletti, D., 1999. Disasters by Design. Joseph Henry Press, Washington, DC. Peduzzi, P., 2006. The disaster risk index: overview of a quantitative approach. In: Birkmann, J. (Ed.), Measuring Vulnerability to Natural Hazards—Towards Disaster Resilient Societies. UNU-Press, Tokyo, New York, Paris. Peng, K., 1997. Research on the countermeasures of fighting and defending against natural calamities in economic development in China. Chongqing Environmental Science 19 (2), 21–26 (in Chinese). Scho¨nwiese, C.D., Grieser, J., Tromel, S., 2003. Secular change of extreme monthly precipitation in Europe. Theoretical and Applied Climatology 4, 132–139. Siegel, P.B., 2005. Looking at rural risk management using an asset-based approach. Paper prepared for the Commodity Risk Management Group, Agricultural and Rural Development Department, ESW, Washington, DC, World Bank. Tsunami Evaluation Committee, 2006. The Tsunami Evaluation Committee Synthesis report /http://www.tsunami-evaluation.org/ The+TEC+Synthesis+Report/S. UNISDR (United Nations International Strategy for Disaster Reduction), 2005. Final report from the World Conference on Disaster Reduction, 18–22 January 2005, Kobe, Hyogo, Japan. World Bank, 2003. Financing Rapid Onset Natural Disaster Losses in India: A Risk Management Approach. Report No. 26844. The World Bank, Washington, DC. World Bank, 2005. Commodity and Weather Risk Management Programs to be Expanded. World Bank News & Broadcast, May 24, 2005. World Bank, 2006. Hazards of Nature, Risks to Development: An IEG Evaluation of World Bank Assistance for Natural Disaster. The World Bank, Washington DC.
Joanne Linnerooth-Bayer Aniello Amendola International Institute for Applied Systems Analysis, Risk and vulnerability, A-2361, Laxenburg, Austria E-mail address: [email protected] (A. Amendola) Norio Okada DPRI, Kyoto University, Japan Peijun Shi ADREM, Beijing Normal University, Beijing, PR China
Environmental Hazards 7 (2007) 1–6 www.elsevier.com/locate/hazards
Editorial
Disaster risk management: Pro-active financing to reduce vulnerability 1. Background Recent events, like the Indian Ocean tsunami, catastrophic flooding in Guatemala, the Kashmir earthquake and Hurricane Katrina, have had staggering human, economic and environmental consequences, and contributed to the alarming upward trend in disaster losses. Over the period 1984–2003, more than 4 billion people were affected by natural disasters, and between 1990 and 1999 the costs of disasters (in constant dollars) were more than 15 times higher than during the period 1950–59 (World Bank, 2006). The dominant factors behind rising losses are changes in land use and increasing concentration of people and capital in high-risk areas, for example, in coastal regions exposed to windstorms, in fertile river basins exposed to floods, and in urban areas exposed to earthquakes (Miletti, 1999). Although the rise in disaster losses today is largely driven by socio-economic factors, there is mounting evidence of a significant climate-change signal in disaster events (Scho¨nwiese et al., 2003; Emanuel, 2005). The United Nations Intergovernmental Panel on Climate Change recently reported observations of long-term and widespread changes in wind patterns and aspects of extreme weather including droughts, heavy precipitation, heat waves and the intensity of tropical cyclones (IPCC, 2007). The focus of this volume is on natural disasters as they affect the poor and vulnerable in developing countries, who disproportionately bear the human and economic burdens. In the past quarter century over 95% of disaster deaths occurred in developing countries, and direct economic losses as a share of national income were more than double in low-income versus high-income countries (Arnold and Kreimer, 2004). There are many reasons for this. Economic circumstances force many to live and work in high-risk areas, and regulations on land use and construction are lax and often not enforced. Early warning often does not reach the most vulnerable, who may ignore warnings in fear of deserting livestock and other possessions. Moreover, the statistics do not record the longer-term losses in lives and livelihoods due to the inability of developing country governments and their citizens to finance the recovery process. Disasters exacerbate poverty as victims take out highinterest loans, sell assets and livestock, or engage in low-risk, 1747-7891/$ - see front matter r 2007 Elsevier Ltd. All rights reserved. doi:10.1016/j.envhaz.2007.04.001
low-yield farming to lessen exposure to extreme events. Without a post-disaster infusion of capital for reconstruction, disasters can also exacerbate poverty by their longterm adverse effects on economic development. As a case in point, 4 years after the devastation of Hurricane Mitch in 1998, the GDP of Honduras was 6% below pre-disaster projections (Mechler, 2004), and according to Honduras’ Poverty Reduction Strategy Paper the disaster resulted in an increase of 165,000 poor people (Government of Honduras, 2001). The exposure of developing country populations and their institutions to natural hazards is thus becoming an important component of international development and aid strategies, as well as an important consideration in adapting to climate change. Since most hazard-related aid is triggered by specific events and the need for rapid postdisaster humanitarian response, only limited resources have been available to achieve natural disaster risk reduction ex ante. Ex post disaster aid is essential for humanitarian purposes, but its rapid dispersal may miss opportunities to achieve risk reduction. The Hyogo Framework of 2005 (UNISDR, 2005) concludes that natural hazard risk reduction should be a core component of economic development assistance, and that attention should be directed to financial strategies that hold promise for reducing the burdens on the poor. It is not only the disaster and development communities that are turning their attention to ex ante financial solutions. The U.N. Framework Convention on Climate Change (UNFCCC) calls upon Parties to consider a number of financial and other measures, including insurance instruments, to meet the needs of developing countries in adapting to climate change impacts (Linnerooth-Bayer et al., 2003). Several innovative proposals for assisting developing country risk transfer and insurance have recently been put forward (Bals et al., forthcoming; Linnerooth-Bayer and Mechler, forthcoming). With a focus on developing country risks, the intent of this volume is to explore new directions in pro-active disaster financing that can reduce disaster-related risk and vulnerability, and help alleviate poverty. The papers in this volume address issues that are highly topical to the development, disaster and climate-change communities: risk and vulnerability assessment, financial risk services
ARTICLE IN PRESS Editorial / Environmental Hazards 7 (2007) 1–6
2
and transfer, and catastrophe insurance for the poor. In discussing these issues, the authors take up the following questions:
Risk and vulnerability assessment: What regions and localities are most at risk from extreme events of natural origin? Which regions/localities are most vulnerable in terms of their ability to reduce risks, share losses and otherwise cope with shocks? Can risk and vulnerability be measured? Financial risk services and transfer: What role can financial services at the community level, including access to banks, loans and facilitation of remittances, play in preventing disasters and facilitating recovery? How can highly exposed governments take advantage of novel risk transfer instruments to reduce their financial vulnerability to disasters? Catastrophe insurance for the poor: Do insurance programs, and particularly donor-supported public–private programs, have a role to play in providing disaster safety nets to the poor? What are the advantages and disadvantages of recent and innovative index-based insurance instruments for providing protection to farmers against droughts, floods and other weather-related disasters? Can China, as one of the most exposed and vulnerable countries in the world, make use of catastrophe insurance instruments?
The conceptual and applied analyses of this special edition were first presented at the 2005 annual IIASADPRI Forum organized by the International Institute for Applied Systems Analysis (IIASA), the Disaster Prevention Research Institute of Kyoto University (DPRI) and Beijing Normal University (BNU). One purpose of this annual forum is to address disaster vulnerability, which by considering the social, economic and ecological system, as well as multiple stresses and system resilience, is conceptually more complex than risk. Tackling this complexity has been one of the fundamental challenges of the IIASA-DPRI Forum and the papers in this volume. 2. Contents The seven papers summarized below collectively address the above issues and related questions with regard to the assessment and management of disaster risk and vulnerability in the developing world. 2.1. Risk and vulnerability assessment 2.1.1. What regions and localities are most at risk from extreme events of natural origin? It is important to establish the factual basis upon which international development and climate-adaptation organizations, among others, should develop policies supporting sustainable natural hazard risk reduction and transfer. The current emphasis on a risk-based decision process,
combined with an appreciation of local circumstances and institutional capacity, necessitates risk comparisons across regions or nations. Without these comparisons, it is difficult to prioritize the geographic focus of risk reduction or financial strategies, or position them within broader development and poverty alleviation goals. Comparisons are difficult, however, without a systematic approach both to the methodologies of natural hazard risk assessment and the underlying observations of natural hazard occurrence, severity and direct and indirect losses. The ‘‘hotspots project’’ described by Arthur Lerner-Lam in his paper titled ‘‘Assessing Global Exposure to Natural Hazards: Progress and Future Trends’’ estimates global natural disasters risks in terms of their mortality and economic losses. The methodology combines hazard exposure with historical vulnerability for two indicators of elements at risk—population and Gross Domestic Product (GDP) per unit area—for six major natural hazards, and decomposes the estimation at sub-national scales. Such information can be useful for informing a range of disaster prevention and preparedness measures, including prioritization of resources, targeting of more localized and detailed risk assessments, implementation of risk-based disaster management and emergency response strategies, and development of long-term land-use plans and multi-hazard risk management strategies. The hotspots approach is being used in several forums to support enhanced risk reduction and risk-transfer efforts and the ‘‘mainstreaming’’ of mitigation within development strategies. However, as the author and others (see Dilley, 2006) make clear, the historical completeness, availability and quality of global hazard, vulnerability and loss data make it difficult to provide a complete prescriptive assessment of risk. The calculations underlying global natural hazard risk mapping depend on the availability and quality of geophysical and socio-economic data, which are highly variable from region to region, and may impede the application of global rankings to regional decision making. The research points to specific needs for more research, standardized data acquisition and more highly resolved regional and sub-national analyses. The author suggests the possibility of a new class of regional studies combined in a global synthesis, making global priority setting for risk reduction and risk financing more effective. 2.1.2. Which regions/localities are most vulnerable in terms of their risk exposure, and including their ability to cope with this exposure by reducing and sharing losses? Can we measure risk and vulnerability? Information on hazards and risks is crucial, but insufficient to fully guide policies targeted to reduce the natural hazard burden on the poor. Enhancing disasterrisk reduction before a disaster occurs, and also during the reconstruction process, requires enhanced knowledge regarding the most vulnerable groups, the areas at risk
ARTICLE IN PRESS Editorial / Environmental Hazards 7 (2007) 1–6
and also the driving forces that influence and generate risk and vulnerability. The question is whether this knowledge can be quantified. Empirical indicators of risk and vulnerability have been developed on different scales and for different purposes. For example, the hotspots project described above is one quantitative measure of risk on a global scale. In his paper titled ‘‘Risk and Vulnerability Indicators at Different Scales: Applicability, Usefulness and Policy Implications’’ Joern Birkmann compares the hotspots approach with the Disaster Risk Index (DRI) (Peduzzi, 2006) and the Americas Indexing Programme (Cardona, 2006), both of which measure disaster risk and some aspects of risk management performance. In addition, the author juxtaposes these global measures of risk and vulnerability with a selected local approach, the Community DRI, to underline the differences. The four approaches are examined according to their applicability, usefulness and policy implications. Since the assessment and mapping of human vulnerability is less developed than hazard assessment, this paper focuses in great depth on how the approaches capture vulnerability. The hotspots and DRI concepts mainly measure risk exposure, whereas the Americas Project includes elements of coping capacity and resilience. The capacity of households and communities to cope with disasters and restore their livelihoods and lives can be assessed more accurately at the community level. Thus the Community DRI incorporates more detailed measures of coping capacity and ability to respond. According to the author, however, none of the risk and vulnerability studies adequately capture environmental and institutional aspects of disaster vulnerability, or medium- and long-term adaptation. The different scale measurements clearly impose both opportunities and constraints on their usefulness in setting risk management priorities. The paper concludes with the importance of viewing risk and vulnerability assessment as a process for which quantitative measures and instruments contribute useful, but inexact, knowledge to help guide the discourse, but not to fully determine the outcome. 2.2. Financial risk services and transfer 2.2.1. What role can financial services at the community level, including access to banks, loans and insurance, play in preventing disasters and facilitating recovery? In developing countries, households provide most of the financial and other resources for private-sector disaster response—mainly through consumption of available resources or savings (Dannenmann and Warner, 2004). The alternative includes arrangements that involve reciprocal exchange such as kinship ties and community self help. Despite their limitations, Cohen and Sebstad (2003) claim that savings and informal pooling arrangements work reasonably well for less severe and idiosyncratic shocks. Yet, they are inadequate and inappropriate for large
3
catastrophes that deplete assets and savings and that affect people throughout a region or country. Without reciprocal support or outside aid, disasters can lead to a ‘‘cycle of poverty’’ as victims take out high-interest loans (or default on existing loans), sell assets and livestock, or engage in low-risk, low-yield farming to lessen exposure to extreme events (Siegel, 2005). Increased attention has thus been given to the possible role of financial services, including banking and insurance, in reducing disaster-related poverty (Mechler et al., 2006). In their paper titled ‘‘Financial Services and Disaster Risk Finance: Examples from the Community Level’’ Koko Warner, Laurens Bouwer and Walter Ammann describe four different risk financing initiatives aimed at reducing the vulnerability of poor communities to disaster risks: (1) public social investment funds in El Salvador that provide rapid assistance to poor communities as well as resources for small construction projects, such as retrofitting or adaptation of structures for extreme weather conditions; (2) a risk reduction and risk pooling/insurance scheme for the city of Manizales, Colombia, that finances risk reduction and reconstruction; (3) the DHAN Foundation initiatives in India to help disadvantaged people organize community groups for risk management purposes; and (4) programs by micro-finance institutions (MFIs), like Opportunity International, that provide a variety of financial services to help groups better manage their disaster risks and thus improve their creditworthiness. The paper offers an overview of advantages and limitations of these initiatives and specific suggestions for public- and private-sector actors, and other partners, to improve alternatives for financial disaster risk management at the community level. 2.2.2. How can highly exposed governments take advantage of novel risk-transfer instruments to reduce their financial vulnerability to disasters? With a large portfolio of infrastructure assets and responsibility to provide post-disaster assistance to the poor, governments of highly exposed developing countries can be highly vulnerable to disasters. If governments do not have the necessary infusion of capital after a disaster to rebuild critical infrastructure and assist households and businesses, the result is delays in recovery leading to secondary economic and social effects, such as deterioration in trade, budget imbalances and increased incidence of poverty (Linnerooth-Bayer et al., 2005). In the past, postdisaster sources of finance in developing countries have been woefully inadequate to assure timely relief and reconstruction. For example, 2 years following the 2001 earthquake in Gujarat, India, assistance from a government reserve fund and international sources had reached only 20% of original commitments (World Bank, 2003). International support for the India Ocean tsunami was exceptional with estimates of about $7000 per affected victim, which can be compared with the devastating floods affecting Bangladesh in 1998, where support was estimated
ARTICLE IN PRESS 4
Editorial / Environmental Hazards 7 (2007) 1–6
at about $3 per affected victim (Tsunami Evaluation Coalition, 2006). Rather than relying fully on ad hoc aid, there are innovative prospects for governments to assure sufficient post-disaster capital by managing their financial risk exposure. In their paper titled ‘‘Sovereign Financial Disaster Risk Management: The Case of Mexico’’ Victor Cardenas, Reinhard Mechler, Stefan Hochrainer, Georg Pflug and Joanne Linnerooth-Bayer discuss selected ex ante financing arrangements to assure post-disaster liquidity for developing country governments, including catastrophe reserve funds, contingent credit contracts and catastrophe bonds (a catastrophe bond is an instrument whereby the investor receives an above-market return when a specific catastrophe does not occur in a specified time, e.g., an earthquake of magnitude 7.0 or greater on the Richter scale in the vicinity of Mexico City over a 1-year period, but sacrifices interest or part of the principal following the event). The government’s disaster risk is thus transferred to international financial markets that have many times the capacity of the reinsurance market. In 2006, Mexico became the first middle-income developing country to transfer part of its public sector natural catastrophe risk to the international markets through conventional reinsurance and a novel catastrophe bond. The Mexican case will assure the government of sufficient post-disaster capital to provide emergency relief, repair public infrastructure and assist the low-income population in the case of a major earthquake. The costs of financial instruments, including the Mexican transaction, however, can greatly exceed expected losses, and for this reason it is important to examine their benefits and alternatives. This paper analyzes the Mexican case from the views of the Ministry of Finance and Public Credit (the risk cedent) and analysts at the International Institute for Applied Systems Analysis (IIASA), which provided economic analyses informing the decision. The paper scrutinizes the choice the authorities faced between the two different risk-transfer instruments: reinsurance and a catastrophe bond. The analysts conclude that the catastrophe bond is costly (significantly above expected losses) but in comparison to the reinsurance contract, it avoids the risk of non-payment of claims from insurer insolvency. The Mexican case is of considerable interest to highly exposed transition and developing countries, many of which are considering similar transactions. 2.3. Catastrophe insurance for the poor 2.3.1. Do insurance programs, and particularly donorsupported public–private programs, have a role to play in providing disaster safety nets to the poor? In most wealthy developed countries, the state and private insurers, either acting alone or in partnership, provide safety nets for victims by providing post-disaster assistance and monetary compensation. Yet, traditional government–insurer (public–private) partnerships as they
exist in the developed world are generally inadequate for providing security against financial shocks in highly exposed low- and middle-income developing countries. Households, farmers and businesses in these countries cannot easily afford commercial insurance to cover their risks, even if it is offered and backed by the government. Nor can they rely on public support since governments of highly exposed developing countries are frequently strapped for cash after major disasters. This is the case even accounting for discretionary domestic and international aid, which with rare exceptions (e.g., the 2005 Indian Ocean tsunami) does not fully cover the financing needs for emergency relief and reconstruction. In their paper, titled ‘‘Disaster Safety Nets for Developing Countries: Extending Public-Private Partnerships’’, Joanne Linnerooth-Bayer and Reinhard Mechler examine recent innovations in financial management regimes that go beyond traditional public–private partnerships. Extended partnerships can include the government and private insurers, and also NGO’s, international financial institutions and other donors. The authors illustrate with three examples: the Turkish Catastrophe Insurance Pool, the Andhra Pradesh Disaster Microinsurance Scheme, and the Malawi index-based loan-insurance pilot project. These extended partnerships are providing safety nets to developing country households and communities at risk to major shocks to their lives and livelihoods. Importantly, they provide secure financial arrangements to low-income communities before disasters strike and, among many other benefits, they relieve the uncertainty and anxiety of depending on ad hoc post-disaster aid for recovery and even survival. The authors caution, however, about the many possible pitfalls in establishing these systems on a wide scale. 2.3.2. What are the advantages and disadvantages of recent innovative index-based insurance instruments for providing protection to farmers against droughts, floods and other weather-related disasters? More than 40% of farmers in developing countries face threats to their livelihoods from adverse weather, which destabilizes households and creates food insecurity (World Bank, 2005). In the Southern African Development Community (SADC), as a case in point, floods, cyclones and droughts have been a major cause of hunger affecting more than 30 million persons since 2000. Governments and donors react to these shocks rather than pro-actively managing the risks. These emergency reactions have been criticized for being ad hoc, sometimes untimely and destabilizing local food markets (Hess and Syroka, 2005). The alternative includes measures to prevent the risks and insurance instruments (made affordable to the poor) for decreasing farmer vulnerability. While many high-income countries have long standing agricultural insurance programs, Hector Ibarra and Jerry Skees in their paper titled ‘‘Innovation in Risk Transfer for Natural Hazards Impacting Agriculture’’ argue that these
ARTICLE IN PRESS Editorial / Environmental Hazards 7 (2007) 1–6
programs are not appropriate for low-income countries. Still, low-income countries usually have large numbers of small and vulnerable farms that could benefit from agricultural insurance to protect against common problems that create disastrous losses. Building systems whereby insurance transfers highly correlated and catastrophic losses out of the community, and banks and non-banking institutions facilitate savings and borrowing to assist in coping with more frequent and less severe events, is, according to the authors, at the core of designing effective public–private systems for agricultural output risk. An innovative alternative to traditional indemnity-based agricultural insurance is index-based insurance, which is a contingent contract with a payoff determined by prespecified extreme events, for example, a specified lack of precipitation recorded at a weather station. Farmers collect an insurance payment if the index reaches a certain measure or ‘‘trigger’’ regardless of actual losses. The authors provide an overview of traditional indemnitybased agricultural insurance, and discuss the lessons learned from recent pilot index-based insurance for managing agricultural production risk. Focusing on experience in North America, the authors conclude that indemnity-based insurance is not appropriate for developing country farmers for the main reason that they can ill afford the subsidies inherent in most multiple peril crop insurance programs. In addition, the transaction costs from extensive claims handling would result in unaffordable premiums. The paper then introduces innovations—that can be financed through extended public-private partnerships—using index-based insurance products. These products hold promise for lower-income countries with large numbers of small farm households, yet it is important to consider both their advantages and disadvantages for each specific context. 2.3.3. Can China, as one of the most exposed and vulnerable counties in the world, make use of catastrophe insurance instruments? China has large exposure to all types of hazards, including typhoons, floods, landslides, and earthquakes. The government recognizes that progress on disaster risk reduction will require a long-term commitment, and the aim is to build disaster resilient communities by promoting increased awareness of the importance of disaster reduction as an integral component of sustainable development. As an example, after the disastrous Yangtze River floods in 1998 the Chinese government banned logging in the upper watershed and increased reforestation efforts and prohibited additional land reclamation projects through several relevant legislations. Despite extensive attempts to reduce flood risks with reforestation, the main mitigation measures in China (not only for floods) have been structural, for example during the past half century China has constructed 84,000 reservoirs and 12,000 km of barrages (CPCU, 2003). This is not surprising given China’s population density and limited arable land
5
making it difficult for the authorities to fully restrict development in high-risk areas. Despite these measures, Chinese authorities recognize that risks are rising because of such factors as escalating capital investments, increased migration to the coast, and climate change (Peng, 1997). The national authorities are looking thus to insurance instruments—and public–private arrangements—to help the exposed public cope with floods and other extremes. This volume includes a transcript of the opening lecture by Peter Forstmoser titled ‘‘Outlook for Innovative Insurance Instruments in China.’’ This talk examines China’s historical exposure to natural hazards, and points out that only a small part of the economic loss is insured today. Swiss re-estimates that well below 5 percent of the total economic loss would be insured if a large earthquake were to strike Beijing. The speaker asks whether insurers can cope with this large loss potential, and whether comprehensive catastrophe insurance is possible or even advisable in China. The paper concludes optimistically by discussing the potential to pool China’s risks by setting up layered (public–private) insurance systems. The speaker is convinced that improving China’s ability to cope with large catastrophes will reinforce social stability, economic growth and development in China. 3. Conclusions As the disaster, development and climate-change communities consider reallocating resources from post-disaster relief to pro-active risk prevention and financing, the papers in this volume provide conceptual and practical analyses that can guide policy makers in reducing vulnerability to those most at risk. The policy solutions combine governmental actions with market mechanisms supported by NGOs and international financial institutions and donors—extended public–private partnerships. The comparative risk estimates of the Hotspots Project and methodologies for assessing developing country vulnerability can help set priorities for national and international risk reduction and transfer programs. The emergence of novel risk-financing and risk-transfer instruments, including catastrophe bonds and indexed weather insurance, and novel risk-transfer regimes, which extend partnerships beyond the government and private sector, provides new opportunities for pooling and transferring these risks. Moreover, there may be formal ways of tying insurance and other risk-transfer schemes with the mitigation of risks. As the papers demonstrate, experience with pro-active disaster risk management is still in the early stages, but recent pioneering efforts are demonstrating its substantial potential. By documenting this experience, and moving beyond experience to suggest new opportunities, the authors in this volume will contribute to reducing the burdens disasters place on the vulnerable in the developing world.
ARTICLE IN PRESS 6
Editorial / Environmental Hazards 7 (2007) 1–6
References Arnold, M., Kreimer, A., 2004. The socio-economic costs of disasters. In: Mathur, A., Burton, I., van Aalst, M. (Eds.), An Adaptation Mosaic: An Example of Emerging Bank Work in Climate Change Adaptation, Final Draft, Washington DC, World Bank Global Climate Change Team, The World Bank, pp. 5–14. Bals, C., Butzengeiger, S., Werner, K., forthcoming. Insuring the uninsurable: design options for a climate change funding mechanism. In: Gurenko E. (Ed.), Climate Policy, Special Issue on Insurance and Climate Change. Cardona, O.D., 2006. A system of indicators for disaster risk management in the Americas. In: Birkmann, J. (Ed.), Measuring Vulnerability to Natural Hazards—Towards Disaster Resilient Societies. UNU-Press, Tokyo, New York, Paris. Cohen, M., Sebstad, J., 2003. Reducing Vulnerability: The Demand for Microinsurance. MicroSave-Africa, Africa. CPCU, 2003. Managing flood losses: an international review of mitigation and financing techniques, Part I. CPCU Journal (Fall), 75–93. Dannenmann, S., Warner, K., 2004. Solidarity and opportunity: the potential of insurance for disaster risk management in developing countries. Conference Proceedings and Workshop Report. ProVention Consortium, October 2004, Zurich. Dilley, M., 2006. Disaster risk hotspots: a project summary. In: Birkmann, J. (Ed.), Measuring Vulnerability to Natural Hazards: Towards Disaster Resilient Societies. United Nations University Press, Tokyo, pp. 182–188. Emanuel, K., 2005. Increasing destructiveness of tropical cyclones over the past 30 years. Nature 436, 686–688. Government of Honduras, 2001. Poverty Reduction Strategy Paper. The World Bank, Washington, DC. Hess, U., Syroka, J., 2005. Weather-based insurance in Southern Africa: The Case of Malawi. Agriculture and Rural Development Discussion Paper 13, Washington DC, The World Bank. Intergovernmental Panel on Climate Change (IPCC), 2007. Climate change 2007: the physical science basis, summary for Policymakers. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change /http://www.ipcc.ch/ SPM2feb07.pdfS. Linnerooth-Bayer, J., Mechler, R., forthcoming. Insurance for assisting adaptation to climate change in developing countries: a proposed strategy. In: Gurenko, E. (Ed.), Climate Policy, Special Issue on Insurance and Climate Change. Linnerooth-Bayer, J., Mace, M.J., Verheyen, R., 2003. Insurance-Related Actions and Risk Assessment in the Context of the UN FCCC /http:// unfccc.int/sessions/workshop/120503/documents/background.pdfS. Linnerooth-Bayer, J., Mechler, R., Pflug, G., 2005. Refocusing disaster aid. Science 309 (5737), 1044–1046. Mechler, R., 2004. Natural Disaster Risk Management and Financing Disaster Losses in Developing Countries. Karlsruhe, Verlag fu¨r Versicherungswissenschaft.
Mechler, R., Linnerooth-Bayer, J., Peppiatt, D., 2006. Microinsurance for natural disasters in developing countries: benefits, limitations and viability. Geneva, ProVention Consortium. /http://www.proventioncon sortium.org/themes/default/pdfs/Microinsurance_study_July06.pdfS. Miletti, D., 1999. Disasters by Design. Joseph Henry Press, Washington, DC. Peduzzi, P., 2006. The disaster risk index: overview of a quantitative approach. In: Birkmann, J. (Ed.), Measuring Vulnerability to Natural Hazards—Towards Disaster Resilient Societies. UNU-Press, Tokyo, New York, Paris. Peng, K., 1997. Research on the countermeasures of fighting and defending against natural calamities in economic development in China. Chongqing Environmental Science 19 (2), 21–26 (in Chinese). Scho¨nwiese, C.D., Grieser, J., Tromel, S., 2003. Secular change of extreme monthly precipitation in Europe. Theoretical and Applied Climatology 4, 132–139. Siegel, P.B., 2005. Looking at rural risk management using an asset-based approach. Paper prepared for the Commodity Risk Management Group, Agricultural and Rural Development Department, ESW, Washington, DC, World Bank. Tsunami Evaluation Committee, 2006. The Tsunami Evaluation Committee Synthesis report /http://www.tsunami-evaluation.org/ The+TEC+Synthesis+Report/S. UNISDR (United Nations International Strategy for Disaster Reduction), 2005. Final report from the World Conference on Disaster Reduction, 18–22 January 2005, Kobe, Hyogo, Japan. World Bank, 2003. Financing Rapid Onset Natural Disaster Losses in India: A Risk Management Approach. Report No. 26844. The World Bank, Washington, DC. World Bank, 2005. Commodity and Weather Risk Management Programs to be Expanded. World Bank News & Broadcast, May 24, 2005. World Bank, 2006. Hazards of Nature, Risks to Development: An IEG Evaluation of World Bank Assistance for Natural Disaster. The World Bank, Washington DC.
Joanne Linnerooth-Bayer Aniello Amendola International Institute for Applied Systems Analysis, Risk and vulnerability, A-2361, Laxenburg, Austria E-mail address: [email protected] (A. Amendola) Norio Okada DPRI, Kyoto University, Japan Peijun Shi ADREM, Beijing Normal University, Beijing, PR China