2018 - 2019 Edition of Citi Perspectives for the Public Sector

Citi Perspectives for the Public Sector |  2018-2019 41 Natural Disaster Risk Management: A Brief Overview of Tools Available to Governments M anaging the financial impact from natural disasters is a growing challenge for governments around the world. This article outlines how they can take a multi-layered approach to risk financing and explains the importance of transparency as an enabling condition for effective disaster relief. Economic losses resulting from natural disasters reached a staggering $353 billion in 2017, the second costliest year for natural disaster damage ever recorded. 1 Of these losses, $134 billion were insured, making 2017 also the second costliest year for insurers on record. 2 Catastrophic events such as Hurricanes Maria, Irma and Harvey in the USA and Caribbean, wildfires in California and earthquakes in Mexico were some of the major events that drove these massive economic losses. Fortunately, there are a number of risk mitigation tools available to governments. These can be combined into a portfolio of solutions to provide cost-effective and comprehensive risk mitigation to help countries avoid shocks from natural disasters. But how might a government build a risk mitigation portfolio? What considerations should guide its construction? This article summarizes the “multi-layered” approach to risk financing and describes two of the interesting solutions that might comprise a risk mitigation portfolio. The World Bank has sponsored research about building a portfolio of financial tools for disaster risk mitigation. This literature promotes a “multi-layered” strategy, in which governments match different funding sources to possible natural disaster events. Disasters are assessed in terms of their expected frequency and severity, while financing tools are defined by their anticipated cost and payout speed. The illustration below compares some commonly available risk mitigation solutions in terms of these attributes. “Layering” refers to the prioritization of certain funding sources for disaster events at different levels of frequency and intensity. Joaquin Jugo Head of LATAM Public Sector, Citi Jorge Ordonez Vice President, Public Sector, Citi Paull Randt Associate, Public Sector, Citi 1 AON Benfield (2018) “ Weather, Climate & Catastrophe Insight, 2017 Annual Report. ” 2 AON Benfield, ibid