Adapting to Climate Change: Assessing the World Bank Group ...

CHAPTER 3CLIMATE VARIABILITYfund disaster response. 33 The second need is to access the massive funds needed forreconstruction after a major catastrophe.3.66 Historically, the Bank has often helped meet post-disaster liquidity needs bydiverting funds from existing projects. In recent years, the Bank has moved away fromreallocations, 34 and has supported two instruments (insurance through a risk pool andcontingent credit lines) that can assist in providing post-disaster liquidity directly.3.67 The Caribbean Catastrophic Risk Insurance Facility offers a successful example of amulticountry insurance risk pool. The facility is designed to reduce the impact ofnatural disasters by providing member countries with insurance payouts sufficient tocover short-term needs in the aftermath of an earthquake or hurricane. The facility hasbeen successful in offering insurance at a lower rate than would available had eachcountry tried to purchase insurance separately or if each country maintained its ownreserve fund, and is generally viewed positively by member countries.. (See AppendixI4 for details.)3.68 A more widely applicable instrument is the Deferred Drawdown Option forCatastrophe Risk (CatDDO). The CatDDO is an instantly available credit line for IBRDclients, designed to cover immediate expenses of disaster response. For an upfront feeof 0.5 percent (and an annual renewal fee of 0.25 percent), the client can set up a creditline of up to $500 million or 0.25 percent of GDP, whichever is less. This is only afraction of the cost of a typical catastrophe, but it provides cash when time is of theessence. The credit line is activated when the client declares a state of emergency for anatural disaster. Since the Cat DDO became available in 2008, 7 countries have adoptedthe instrument. 353.69 The Cat DDO offers some opportunities for influencing disaster riskmanagement policy. Like all DPOs, it is linked to prior policy actions. A hazard riskmanagement plan is a prerequisite for eligibility, and this is reflected in some prioractions. For example, the Costa Rica Cat DDO specified prior actions includingadoption of a national emergencies and risk prevention law, creation of a nationalemergency fund, and incorporation of a disaster risk management policy into thenational development plan and screening for national investment projects. Other CatDDOs have similar prior action requirements. While the possibility of gaining access tothe DDO may encourage countries to improve their disaster planning, such actionshave generally been devised as part of broader national disaster management strategies(sometimes supported by the Bank or GFDRR) and driven by a country desire toimprove disaster planning, rather than being tied directly to a DDO operation. The CatDDO enables the Bank to work on disaster risk management with Ministries of Finance(rather than with traditional civil defense/disaster relief agencies), which has more53