Applications of Risk Financing Techniques to Manage Economic Exposures to Natural Hazards
Por Torben J. Andersen (10/05, ENV-147, En) Vea también Medio Ambiente
The countries in Latin America and the Caribbean face high financial, socioeconomic and human vulnerabilities to natural hazards. Total reported economic losses associated with natural hazard related disasters have been increasing steadily over the past two decades, in excess of population and per capita economic growth rates. A reduction of vulnerability is needed to ensure sustainable economic growth and development in the region. Disasters can have a negative impact on productive assets, public sector investments, and social development and generally disrupts economic activity.
The most common strategy of the countries in the region has been to practice patience, and make preparations to face disasters through early warning and contingency planning. They have invested very little in reducing risk. This ex post, reactive approach to financing often means high losses. Lags in the post-disaster recovery period occur as financing options are evaluated to determine the most appropriate and effective means of intervention. Making estimates of damages for which financing is required also takes time. Additionally, the rise in the occurrence of natural hazard events could put a strain on already diminishing resources available for international aid and development, since international entities have been a significant source of reconstruction financing. Assistance through lending also results in increased indebtedness.
The countries in the region are starting to balance such ex post funding with prevention investments. Financial protection for potential losses is also gradually emerging through catastrophe risk transfer instruments. International capital markets are increasingly being highlighted as potential funding sources. Risk coverage allows reconstruction after a disaster without forcing countries to engage in disruptive reallocations of resources away from economic development programs. The combination of different risk transfer approaches and the utilization of diverse risk-linked financial instruments provide an opportunity to establish more effective coverage for catastrophe exposures.
This study follows an analytical risk management process that begins by identifying the major hazards to which the countries of Latin America and the Caribbean are exposed. It then outlines the risk exposures related to these hazards, evaluates opportunities for risk transfer and presents examples of financing options in various countries.
The document forms part of a series of studies that the Inter-American Development Bank's Sustainable Development Department is undertaking in the area of financial planning for natural hazards. As part of the overall Bank strategy for proactive disaster risk management, this document focuses on the use of alternative financial instruments to cover different layers of risk.
Ultima actualización: 08/05/07
