A global review of disaster reduction initiatives - Welcome to the ...

mitigation, recovery and reconstruction at differentlevels. Insurance can be used at thenational, community and household levels,while microfinance services are provided at thecommunity and household levels. Public worksprogram have their own specific context, and itcould undertaken to provide relief to householdsand communities struck by situations in whichthere are no income-earning opportunities.These could be great deal of variation in theirforms and applications. It is also likely that in agiven situation a combination of these instrumentsmay be required.At the national level, improvement in the regulatoryframeworks of disaster reduction includingdisaster-related insurance, building codesand land use planning will help ensure thatinfrastructure is properly sited and built to minimisedamages as well as to reduce the costs ofrepair. This involves public insurance policy,market and regulatory incentives for risk andvulnerability reduction, protection against fluctuationsin insurance/reinsurance prices, augmentationof insurance coverage at reasonablecost and backstop financial mechanisms.One of the limitations of hazard mitigationinsurance is that it is primarily a mechanism thatwill help after the disaster occurs. While somegroup-based insurance policies are linked toimprovement in physical surroundings, thereare not many examples of built-in incentives ininsurance policies, which motivate householdsto invest in mitigation. On the contrary, availibilityof insurance may discourage investment inmitigation, as household may tolerate riskierpractices after purchasing insurance policies.Well-designed insurance schemes may encourageappropriate risk management by loweringpremiums if compliance with building codesand land use regulations are observed. Oneexample where the insurance coverage has beenused as an incentive to undertake disaster mitigationor protection measures is the case ofFlorida in the USA after hurricane Andrew in1992. In this case, the insurance industry promotedlower deductibles to wind storm insuranceif building code compliance was achieved.The problem with this kind of incentives, however,is the certification process. Another limitationof insurance coverage is that the market forinsurance is largely underdeveloped in poorcountries.Selected application of disaster reduction measuresRisk sharing and transfer: protecting investments andsharing the costsThe private insurance sector contributes importantfunding for reconstruction after disaster impact indeveloping countries, but it has made fewer inroads indeveloping country markets. In emerging economies,the state and the individual carry much of the cost ofdisasters. As a result, ad hoc funds transfers to respondto disaster emergencies disrupt planned developmentactivities. Tools have to be developed to assist the verypoor to more effectively manage disaster risk. Thisincludes microfinance mechanisms that can deal withrisks such as disasters and that build social capital andencourage risk mitigation for the very poor. In additionto that, measures may include safety nets and calamityfunds, and informal mechanisms.Source: DMF, 2001Insurance policies should not be seen as a panaceato achieve disaster reduction. If losses from recurringdisasters are too high, the availability of insurancecoverage will be reduced and reinsurancecosts will increase, which has happened in manyparts of the world, for example in the Caribbean.Property insurance for reducing economic riskfrom catastrophes might no longer be available atreasonable prices in the future. In this regard,potential socio-economic impacts related to globalenvironmental and climate changes need to becarefully assessed to anticipate and adapt to theirconsequences. The present retrospective claim calculationwill no longer be commensurate to suchchanges. Therefore, a prospective underwritingapproach is needed by the insurance industry.Other financial mechanisms to promotedisaster risk reduction and safety netsAn effort to explore additional and relevant privatesector engagements and alternative financialinstruments, both to serve as incentives for disasterreduction and as safety nets for recovery, is anongoing interest. For example, guarantee programmesenable governments to mobilise largeramounts of financing with a given amount of supportfrom the private sector. This mechanism hasnot been used for disaster reduction projects yet.However, it offers the potential to catalyse privatefinancing either for public borrowers or privateprojects in developing countries. Private debtfunds could play an important role in financingisaster recovery and prevention projects.2575