Disaster risk financing: a paradigm shift

Disaster risk financing: a paradigm shift

Clarence Wong, Swiss Re’s Chief Economist Asia, discusses how public-private partnerships can proactively help manage the mounting cost of disaster relief.

The Asia-Pacific region is again badly hit by natural disasters.  In the three months to October 2009, Typhoon Morakot devastated Taiwan and created havoc in coastal China, then two ultra-powerful typhoons battered the Philippines, a massive earthquake rocked western Sumatra in Indonesia, serious floods swept southern India, and an earthquake and tsunami struck Samoa. 

All these natural disasters not only caused widespread damage and placed heavy burdens on public budgets; they also sounded again urgent alarm calls for more sustainable risk financing arrangements – before disasters strike -- to enable the affected regions to recover swiftly. 

Rising impact of natural disasters

Over the last few decades, heightened natural disaster activity has impacted virtually all nations.  According to Swiss Re’s sigma study, “Natural catastrophes and man-made disasters in 2008”, 2008 was one of the worst years for natural and man-made catastrophes creating a total economic loss of USD 269bn and claiming more than 240,000 lives with Asia suffering the most.  As most of these catastrophe losses were not covered by insurance, the gap between economic and insured losses has been widening (see Figure 1).

Emerging economies are particularly vulnerable to disasters due to insufficient urban planning, high population growth and environmental degradation. In addition, risks are accumulating in regions most exposed to natural catastrophes, for example, along coastal regions. The insurance penetration, however, is typically very low.

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