World Bank to step up disaster risk financing under new climate plan

The commitment came as part of the bank's Climate Change Action Plan that was published late last week. In this latest plan the WBG stated: "[We] will scale up sovereign disaster risk financing. In 2014 alone, WB projects in over 12 countries helped improve financial resilience, with better post-disaster financial response capacity. "Significant programmes are already in place in the Pacific and the Caribbean. The aim is to add five more countries covered by financial protection instruments, including insurance, risk pools and contingent finance, by 2020. Beyond sovereign schemes, the WBG is currently working with local government units (e.g. in the Philippines) to provide financial cover for natural disasters. The bank will work to expand this, if successful, to other countries. It will also develop and expand contingent finance instruments for IDA countries."hideAs part of this commitment, the WBG and its board of directors last Friday approved a $5m grant by the Global Environment Facility to provide technical support to the government of Kazakhstan and the local insurance market. The grant is designed to help address the effects of climate change on the national economy through the development of an advanced insurance market infrastructure, explained the WBG. Kazakhstan is vulnerable to natural hazards including floods, mudflows, landslides, winds and earthquakes. The WBG said that climate change is expected to exacerbate hydro-meteorological disasters that adversely affect homeowners, SMEs and farmers. Agriculture plays a prominent role in the Kazakhstan economy and makes the country highly vulnerable to the risk of climate change. The WBG explained that to address the impact of climate change and other natural disasters on the national economy, Kazakhstan is currently introducing a national programme of compulsory catastrophe insurance for homeowners and SMEs. The World Bank is providing technical assistance to the country’s government on preparation of a law on compulsory catastrophe insurance. The WBG said that the project is also expected to focus on the enactment of law by developing essential insurance market infrastructure in support of catastrophe insurance products to be offered by local insurers. It said that the insurance products will cover the risks of flood, landslide and earthquake. The WBG project will also support government efforts to reform the current agricultural insurance programme and aim to improve its financial sustainability and level of penetration in the agriculture sector. "New climate risk insurance products to be designed under the project will help farmers to deal with adverse effects of extreme weather events in the sector," said the World Bank. "Over the last few years, the government's fiscal space to cope with unpredicted large outlays caused by natural disasters has been severely reduced to the falling global commodity prices, and worsening economic situation in the region," it added. "For this reason, one of the basic tenets of disaster risk mitigation is the transfer of financial risk to the private insurance markets. Catastrophe risk insurance is a means of transferring the financial and fiscal risk of disasters from government to the private sector. Not only does it protect homeowners, SMEs and the national economy at large from natural disasters, but it also enables more effective targeting of government assistance following such catastrophic events," it continued. In 2011, the World Bank jointly with the Swiss Secretariat for Economic Affairs (SECO) and the Global Environmental Facility (GEF) launched a catastrophe and weather risk reinsurance programme known as the Southeast Europe Catastrophe Insurance Facility (SEE CRIF). SEE CRIF has already invested in the development of catastrophe insurance market infrastructures for Albania, Serbia and Macedonia, where consumers can now buy catastrophe products. Similar catastrophe insurance products will be soon available in Kazakhstan, said the World Bank. It said that in Kazakhstan, SEE CRIF aims to support mass sales of compulsory and non-compulsory catastrophe insurance products through local insurance companies. "The project is expected to assist Kazakhstan with the launch of affordable, innovative catastrophe insurance products covering the risks of weather extremes thus increasing access to sound catastrophe and weather risk insurance products for millions of people in Kazakhstan and reducing economic vulnerability both at local and national levels," stated the bank. The new project will be implemented by the Europa Reinsurance Facility (Europa Re), a specialist catastrophe reinsurance company that was established under Swiss law with technical support from the World Bank. Europa Re is currently owned by the governments of Albania, FYR of Macedonia and Serbia.

World Bank to step up disaster risk financing under new climate plan

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