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Conference on Risk Financing of Disasters: Insurance could reduce financial impact, but cannot be a substitute for other disaster risk reduction (DRR) activities

The Organization for Economic Cooperation and Development (OECD), Asian Disaster Preparedness Center (ADPC) and the Asian Development Bank Institute (ADBI) held a conference on “Developing the elements of a disaster risk financing strategy” in Bangkok on 8-9 May 2018.

 

Representatives from finance and emergency management agencies from more than 20 countries, as well as many representatives of insurance and risk modeling companies participated in the conference. GEM Secretary General, John Schneider was invited to speak in a session on “Damage and loss data collection and exposure quantification”, and discussed GEM’s OpenQuake platform and the development of the global earthquake risk model.

 

The presentation was well received, particularly by risk modelling and insurance companies. Country representatives discussed the collection of disaster loss data (which is mandated under the Sendai Framework for DRR), experiences with recent disasters and the development of disaster management plans. Despite these developments, most of governments represented are not insured for disasters, lack quantitative understanding of risks at the national level, and, as a result, are not well prepared for emergencies outside their recent historical knowledge.

 

Insurance companies on the other hand, spoke at length about various types of insurance schemes available, particularly the increasing use of parametric insurance for disaster relief, which has the benefit of providing rapid payments on simple parametric triggers (e.g., occurrence of an earthquake above a particular threshold), but also carry basis risk which is particularly problematic if the financial impact of the event is greater than expected. Insurers also acknowledged that while insurance could reduce the financial impact, it was not a substitute for other disaster risk reduction (DRR) activities.

 

There is thus a clear need and opportunity to improve risk awareness and understanding of governments, as well as a need to develop risk models that inform the broader spectrum of disaster risk reduction activities. GEM is developing risk indicators that are helping to improve this situation (e.g., estimates of displaced persons), as well as other tools to inform DRR activities (e.g., cost-benefit ratio of building retrofit) and is thus well placed to bridge the gap between DRR and financial management of risk.

GALLERY

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