Global Report on Human Settlements 2007 - PoA-ISS

Mitigating the impacts of disasters
295
earthquake in 1995 (see Box 12.15). Recently, however, a
number of novel schemes have been implemented or are
under implementation. These include, at the macro level,
private–public insurance partnerships administered together
with national governments, international financial institutions
and the private sector, and risk transfer for public
liabilities. 55 For example, the World Bank’s Commodity Risk
Management Group is establishing a <strong>Global</strong> Index Insurance
Facility to assist in providing reinsurance. 56 The Inter-
American Development Bank (IDB) and the Organization of
American States (OAS) have also been providing support for
insurance and hedging products.
The Mexico City earthquake of 1985 revealed a
financing gap, with few residential properties having insurance
cover. Today, the World Bank and Mexico take a
three-step approach to financial risk management: identification
of risks, mitigation investment, and the transfer of
residual risk to insurance companies and capital markets. 57
This has led to a strengthening of the insurance sector and
its regulatory regime; the establishing of a broad-based
pooled catastrophe fund with efficient risk transfer tools; the
promotion of public insurance policies linked to programmes
for loss reduction in the uninsured sectors; and the strengthening
of procedures for risk assessment and enforcement of
structural measures, such as zoning and building code
compliance. 58
Micro-insurance can assist poorer urban residents to
meet their immediate needs during and after a disaster
through emergency loans or the release of savings. It can also
support clients in reconstruction through helping businesses
where productive assets or stock have been lost, or for
repairs to be done on homes. Research by the World Bank
shows clearly the range of options available for relief and
reconstruction. 59 For both of these stages, planning ahead is
critical. Policies, procedures, practices and systems need to
be in place and understood by clients and managers before a
disaster. It is quite difficult to design and roll out new
products immediately after a natural disaster event.
Post-disaster loans are riskier than those provided in
stable times. Refinanced loans will need to be structured so
that the business being financed can generate enough cash
to service both loans, while still allowing the borrower to
care for her or his family. This will require greater focus by
the loan officer on clients’ cash flow, collateral and personal
character. In some circumstances, it may be necessary to
decline a loan application where a second loan may overindebt
the borrower. Applications from those who have not
previously held a loan should be viewed with caution as
capacity and experience to repay immediately following
a crisis may be limited. When successful, post-disaster
microfinance can kick-start development. The Asociación de
Consultores para el Desarrollo de la Pequeña, Mediana y
Micro Empresa (ACODEP), a microfinance organization
based in Nicaragua, focused on micro-enterprise loans predisaster,
but following Hurricane Mitch, established a new
housing loan product in response called Mi Vivenda (‘My
House’). In total, 2700 households took advantage of this
product. The housing loan is now offered as a regular loan
product and has reached a high level of demand. 60
Box 12.15 Insurance policies and disaster loss in Kobe, Japan
In 1995, the Kobe earthquake in Japan caused over US$100 billion in damages and resulted in
the destruction of 150,000 buildings. Insured losses, however, were limited to around US$6
billion. The absence of a comprehensive insurance cover in this wealthy country is a
consequence of the restrictive provisions of the national insurance sector and several key
features of Japanese insurance policies:
• Basic homeowners’ fire insurance policies do not cover fires resulting from earthquakes.
• Owners may purchase a limited earthquake rider, with the indemnity covering 30 to 50
per cent of the structure’s replacement value, up to a maximum of US$100,000.
• Claims were categorized into three groups: total loss, half loss and less than half. If damage
was categorized as half loss, payout would be 15 to 20 per cent of the replacement value.
• Contents were not covered unless they were totally destroyed.
In addition to the specificities of these insurance policies, only 7 per cent of homeowners
nationally have such earthquake riders, and at the time of the earthquake in Kobe, coverage was
less than 3 per cent of homeowners.
During reconstruction, lack of insurance may well have contributed to the economic
pressures that led some homeowners, especially the poor and elderly, to join many renters in
moving from high-value city centre property. The elderly and lower-income families comprised
a large portion of residents in city centre neighbourhoods that were heavily affected by the
earthquake. For many, it was easier to sell their properties to speculators and move elsewhere
than to borrow towards rebuilding. Renters, likewise, found it easier to move elsewhere than
wait for housing to be reconstructed in their former neighbourhoods. The result was a
movement of property from vulnerable groups into the speculation sector, with potential
impacts on land use and values that could, in turn, reduce land and housing access and equity in
the city.
Source: Orr, 2007
Revisiting governance for relief and
reconstruction
During the last 25 years, coordination has become a prominent
feature of multilateral assistance during and after
emergencies. Today, coordination takes up considerable time
and effort for all humanitarian actors. Contemporary relief
and reconstruction operations are large in scope and include
numerous agencies responding to a broad range of needs.
Perhaps the first such large-scale event was the humanitarian
response to Hurricane Mitch in 1998, which directly
affected more than 3 million people as it swept across
Honduras, Nicaragua, El Salvador, Guatemala and Belize. 61
While the United Nations system and large international
NGOs have developed coordination architecture (as
exemplified by the United Nations Office for the
Coordination of Humanitarian Affairs, or OCHA) and codes
of practice (such as the Sphere Standards 62 ), the multitude
of small and sometimes temporary civil society actors who
have come to prominence during recent disasters, such as
the Indian Ocean Tsunami, largely lie outside of these
arrangements and lines of accountability. The contemporary
presence of such a large number of partners, each one with
its own identity, culture, mandate, capacity, funding sources
and operating style, is possibly the one main factor making
coordination an absolutely essential feature of today’s
humanitarian operations. But for coordination to be successful,
an underlying tension between two directions of
Micro-insurance can
assist poorer urban
residents to meet
their immediate
needs during
and after a
disaster