Philippines launches innovative insurance program to boost natural disaster risk management
WASHINGTON DC — A new catastrophe risk insurance program to help the Philippines better respond to losses from climate and disaster risks was launched by the Government of the Philippines, supported by the World Bank (IBRD, International Bank for Reconstruction and Development) and the U.K. Department for International Development.
The program provides the Philippine peso equivalent of US$206 million in coverage against losses from major typhoons and earthquakes to national government assets, and to 25 participating provinces against losses from major typhoons. Insurance payouts are made when pre-defined parametric triggers are met.
The Philippines is among the world’s most vulnerable countries to natural disasters. The country is expected to incur, on average, US$3.5 billion in asset losses each year due to typhoons and earthquakes.
“Financial shocks caused by natural disasters undermine economic growth and poverty reduction,” said Joaquim Levy, Managing Director and Chief Financial Officer of the World Bank Group. “This new insurance program illustrates how the World Bank Group can leverage capital from the market to help governments receive fast cash injections for emergency response and to sustain essential services in times of crisis, empowering local governments to more effectively assist their citizens.”
“This initiative is a major advancement in the Philippines’ efforts to bolster its resilience,” said Mara Warwick, World Bank Country Director for the Philippines. “It demonstrates the global leadership of the country in developing innovative financial solutions to mitigate the financial impacts of extreme climate and weather related events, as well as major earthquakes.”
Under the program, the Government Service Insurance System (GSIS), a government-owned insurance agency, provides the government and the 25 participating provinces with catastrophe risk insurance. IBRD acts as an intermediary to transfer GSIS’s risk to a panel of international reinsurers which were selected through a competitive bidding process – Nephila, Swiss Re, Munich Re via the subsidiary NewRe, Axa, and Hannover Re. Air Worldwide provides the underlying risk modeling for the transaction.
The program is the first of its kind in the Philippines and builds on six years of intensive partnership with the World Bank, including the preparation of the first catastrophe risk model for the country and the adoption of a Disaster Risk Finance Strategy by the Department of Finance. This is the first time that the World Bank has entered into a reinsurance agreement with a governmental agency, and the first time it is executing a catastrophe risk transaction in local currency.
This new insurance program will support the country in responding to impacts of severe natural disasters. It acts as the last line of defense, complementing other funding sources such as the national and local disaster risk reduction management funds and contingent credit that protect against less severe natural disasters.
Since 2009, the World Bank has issued, hedged, or facilitated over US$2.5 billion in transactions to transfer earthquake, wind, drought-related and pandemic risks from its borrowing member countries to the capital markets.