GAR 2015 Main Report

193

Again, the absence of consistent output indicators makes it difficult to assess progress, but the means of verification in the HFA Monitor provide evidence of innovation, suggesting that this is an area where significant progress has been made. As a mechanism to protect social and economic development against exogenous threats, risk financing has attracted growing interest from governments, the private sector and from international organizations such as the World Bank and the OECD.

Insuring assets and business operations against risks goes back to the risk faced by seafarers in the seventeenth century. Since its beginnings at a London coffee house in 1688, where marine traders bought insurance for their goods and ships, buying and selling disaster risk insurance has grown into a big business. In the early twentieth century, governments began to promote insurance as a way of strengthening resilience and avoiding social pressures for compensation. The first government insurance scheme was the US Federal Crop Insurance Program of the 1930s, which sought to protect farmers from the double effects of the Great Depression and the Dust Bowl ( GAR 13 paper

GFDRR, 2014b

GFDRR (Global Facility for Disaster Reduction and Recovery). 2014b,Financial Protection Against Natural Disasters, Background Paper prepared for the 2015 Global Assessment Report on Disaster Risk Reduction. Geneva, Switzerland: UNISDR..
Click here to view this GAR paper.

), a period of droughts and dust storms combined with inappropriate farming practices that began in 1934 and the impacts of which lasted well into the 1940s.

By the early twenty-first century, several mature domestic insurance markets had evolved, for example in Japan, the United States of America (most notably in California), Turkey and Mongolia, but only a limited number of high-income countries used catastrophe risk insurance to hedge their sovereign risk and to ensure financial liquidity in the case of a large-scale emergency ( GAR 13 paper

GFDRR, 2014b

). Most of those countries paid insurance premiums to support the post-disaster reconstruction of damaged public infrastructure, such as Mexico’s Natural Disaster Fund (FONDEN), but more recently, national and regional sovereign risk pools have attempted to maintain financial

liquidity across a range of post-disaster requirements, thereby ensuring fiscal stability during a disaster event and for years afterwards (ibid.).

Interest in using insurance both as a means to strengthen disaster resilience and an incentive to invest in disaster risk reduction has grown since the adoption of the HFA. In HFA progress reports, countries give an account of their adoption of specific policies to expand insurance coverage, for instance through mandates or compulsory protection. At the national and regional level, risk pooling schemes and catastrophe bonds are becoming an increasingly common tool to manage risk. However, only a minority of countries have fully developed mechanisms to access capital markets for risk financing (Figure 9.7). The key challenge countries report is a lack of capacity in their domestic insurance sectors or limited awareness of the costs and benefits of catastrophe insurance amongst potential beneficiaries.

The key features and underlying assumptions of catastrophe insurance for homeowners, businesses and governments have undergone dramatic changes over the years, often triggered by innovations in low and middle-income countries

(Source: UNISDR.)

Figure 9.7 Progress in insuring and financing risk

	193 Again, the absence of consistent output indicators makes it difficult to assess progress, but the means of verification in the HFA Monitor provide evidence of innovation, suggesting that this is an area where significant progress has been made. As a mechanism to protect social and economic development against exogenous threats, risk financing has attracted growing interest from governments, the private sector and from international organizations such as the World Bank and the OECD. Insuring assets and business operations against risks goes back to the risk faced by seafarers in the seventeenth century. Since its beginnings at a London coffee house in 1688, where marine traders bought insurance for their goods and ships, buying and selling disaster risk insurance has grown into a big business. In the early twentieth century, governments began to promote insurance as a way of strengthening resilience and avoiding social pressures for compensation. The first government insurance scheme was the US Federal Crop Insurance Program of the 1930s, which sought to protect farmers from the double effects of the Great Depression and the Dust Bowl (GFDRR, 2014b x GFDRR (Global Facility for Disaster Reduction and Recovery). 2014b,Financial Protection Against Natural Disasters, Background Paper prepared for the 2015 Global Assessment Report on Disaster Risk Reduction. Geneva, Switzerland: UNISDR.. Click here to view this GAR paper. ), a period of droughts and dust storms combined with inappropriate farming practices that began in 1934 and the impacts of which lasted well into the 1940s. By the early twenty-first century, several mature domestic insurance markets had evolved, for example in Japan, the United States of America (most notably in California), Turkey and Mongolia, but only a limited number of high-income countries used catastrophe risk insurance to hedge their sovereign risk and to ensure financial liquidity in the case of a large-scale emergency (GFDRR, 2014b x GFDRR (Global Facility for Disaster Reduction and Recovery). 2014b,Financial Protection Against Natural Disasters, Background Paper prepared for the 2015 Global Assessment Report on Disaster Risk Reduction. Geneva, Switzerland: UNISDR.. Click here to view this GAR paper. ). Most of those countries paid insurance premiums to support the post-disaster reconstruction of damaged public infrastructure, such as Mexico’s Natural Disaster Fund (FONDEN), but more recently, national and regional sovereign risk pools have attempted to maintain financial liquidity across a range of post-disaster requirements, thereby ensuring fiscal stability during a disaster event and for years afterwards (ibid.). Interest in using insurance both as a means to strengthen disaster resilience and an incentive to invest in disaster risk reduction has grown since the adoption of the HFA. In HFA progress reports, countries give an account of their adoption of specific policies to expand insurance coverage, for instance through mandates or compulsory protection. At the national and regional level, risk pooling schemes and catastrophe bonds are becoming an increasingly common tool to manage risk. However, only a minority of countries have fully developed mechanisms to access capital markets for risk financing (Figure 9.7). The key challenge countries report is a lack of capacity in their domestic insurance sectors or limited awareness of the costs and benefits of catastrophe insurance amongst potential beneficiaries. The key features and underlying assumptions of catastrophe insurance for homeowners, businesses and governments have undergone dramatic changes over the years, often triggered by innovations in low and middle-income countries (Source: UNISDR.) Figure 9.7 Progress in insuring and financing risk	Page 1 Page 10 Page 20 Page 30 Page 40 Page 50 Page 60 Page 70 Page 80 Page 90 Page 100 Page 110 Page 120 Page 130 Page 140 Page 150 Page 160 Page 170 Page 180 Page 183 Page 184 Page 185 Page 186 Page 187 Page 188 Page 189 Page 190 Page 191 Page 192 Page 193 Page 194 ->Page 195 Page 196 Page 197 Page 198 Page 199 Page 200 Page 201 Page 202 Page 203 Page 204 Page 205 Page 206 Page 207 Page 210 Page 220 Page 230 Page 240 Page 250 Page 260 Page 270 Page 280 Page 290 Page 300 Page 310