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- Permanent Link:
- http://dpanther.fiu.edu/dpService/dpPurlService/purl/FI13042124/00001
Notes
- Summary:
- This article discusses risk financing at the national, regional, and international levels. It presents different models of risk financing using case studies from Mexico, Costa Rica, the World Bank Catastrophic Fund, and the Caribbean Catastrophic Risk Insurance Facility (CCRIF), with special focus on their strengths and scope for improvement. Disaster risk financing is gaining increased importance as the frequency and severity of disasters remains on the rise. The document begins with a discussion on the concept of risk layering, which says that risk financing instruments should be selected on the basis of the frequency and severity of disasters. The author presents a Risk Layering Pyramid based on five different levels of severity and frequency of risk. According to the concept, insurance or risk transfer is chosen by a country only when expected losses are beyond their capacity to address with traditional financing mechanisms. Factors such as liquidity, political economy, procedural issues, and borrowing capacity, each have an effect on instrument selection. The document then turns to a review of various institutional arrangements and sources of disaster funding, suggesting strengths and scope for improvement for each. It reviews the National Disaster Fund, Mexico; the Post Disaster Risk Financing Mechanism, Costa Rica; and the Catastrophic Risk Deferred Drawdown option, established by the World Bank and the CCRIF. In Mexico, federal infrastructure is repaired by federal funds, while state and municipal infrastructure is repaired through co-financing arrangements. Filing a claim with Mexico’s disaster fund, from damage assessment to the release of funds, takes only 23 days. In the Costa Rica case, the constitutional provision for emergency situations is also outlined in addition to institutional arrangements and sources of funding. The World Bank disaster fund is primarily for middle income countries, providing loans limited to US$500 million, or 0.25 percent of GDP (whichever is smaller). A major strength of Mexico’s disaster fund is that at the end of the financial year remaining balances accumulate. The emergency management commission in Costa Rica, CNE, enjoys much credibility with the population due to its high technical capacity. The World Bank fund is considered an important source of short term liquidity. And the CCRIF is a good example of risk pooling, whereby participating countries contribute to the reserve in proportion to their probable use. ( English,English, )
- Subject:
- Disasters and Risk Financing
- Citation/Reference:
- Poundrik, S. (2011). Disaster risk management in East Asia and the Pacific—disaster risk financing: case studies. EAP DRM Knowledge Notes, Working Paper Series no. 23. The World Bank Global Facility for Disaster Reduction and Recovery (GFDRR).
Record Information
- Source Institution:
- Florida International University
- Rights Management:
- Refer to main document/publisher for use rights.
- Resource Identifier:
- FI13042124
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