THE PHILIPPINES DISASTER

RISK FINANCING STRATEGY

PAOLA SHERINA A. ALVAREZAssistant SecretaryDepartment of Finance, Philippines

LOCATED ALONG

THE

PACIFIC RING OF

FIRE

NATURAL DISASTERS

PHILIPPINES CONTEXTPH AMONG MOST DISASTER PRONE

The Human Cost of

Weather Related

Disasters

Fourth in the world

among countries hit by

the highest number of

disasters over the past

20 years

UN Office for Disaster

Risk Reduction 2015

Global Assessment

Report

Fifth most vulnerable

country in terms of disaster

risk implications for

development capacity

LOCATED ALONG

THE

NORTHWEST

PACIFIC BASIN

NATURAL DISASTERS

PHILIPPINES CONTEXTTHE NEW NORMAL

CASUALTIES: 3000+

AFFECTED: 10 million+

ECONOMIC DAMAGE

PHP256 billion (USD5.77 billion)

Typhoons Ondoy (Ketsana), Pepeng (Parma),

Sendong (Washi) and Pablo (Bopha)

Typhoon Yolanda (Haiyan)

CASUALTIES: 6201 ECONOMIC DAMAGE

PHP571 billion (USD12.87 billion)

NATURAL DISASTERS

PHILIPPINES CONTEXTCALL TO ACTION

Risk assessment tools

show that much worse

storms are possible

A Haiyan-like storm

could cross to Manila,

and cause 2.5x the

estimated losses

Protecting the

Government’s fiscal

capacity across all

possible disasters

requires new

instruments and

policies

NATURAL DISASTERS

PHILIPPINES CONTEXTAVERAGE ANNUAL LOSSES

Philippines is expected to incur PHP 177 billion

per year in losses to public and private

assets due to typhoons and earthquakes.

40% chance of

experiencing a loss exceeding

PHP 989 billion

20% chance of

experiencing a loss exceeding

PHP 1,525 billion

PHILIPPINES DRFI STRATEGY

DEVELOPMENT OBJECTIVES maintain sound fiscal health

develop sustainable financing mechanisms

reduce the impact on the poorest and most

vulnerable; shield the near-poor

STRATEGIC PRIORITIES

National Level: Improve the financing of post-

disaster emergency response, recovery, and

reconstruction needs

Local Level: Provide local governments with funds

for post disaster recovery and reconstruction efforts

Individual Level: Empower poor and vulnerable

households and owners of small and medium-sized

enterprises to quickly restore their livelihoods after

a disaster

RATIONALE AND LEGAL CONTEXT NEW NORMAL: Protecting the Government’s fiscal

capacity across all possible disasters requires new

instruments and policies

Outcome 5 of National Disaster Risk Reduction and

Management Plan 2011-2028

Consistent with the ASEAN Agreement on Disaster

Management and Emergency Response, and the

ASEAN DRFI Roadmap

Can feed into the DRFI initiative under APEC Cebu

Action Plan

Commitment under Second Disaster Risk

Management Development Policy Loan with a

Catastrophe-Deferred Drawdown Option

PHILIPPINES DRFI STRATEGY

Quantifying and clarifying

the contingent liabilities

faced by GPH

Philippines Catastrophe

Risk Model (2014)

Risk Analytics

Acquiring contingent

credit lines to protect

against moderate disasters

CAT-DDO (2011, 2016,

World Bank)

SECURE (JICA)

Using risk transfer to

access international

private reinsurance

and capital markets

KEY STEPS AND INITIATIVES ON THE NATIONAL LEVEL

NOTABLE RESULTS

ANNUAL AVERAGE LOSS

PUBLIC AND PRIVATE ASSETS: 1.8% of GDP

EMERGENCY RESPONSE: 3.6% of GOV’T EXPENDITURE

HAIYAN-LIKE EVENT TO OCCUR WITH

3% ANNUAL PROBABILITY

IN THE NEXT

25 YEARS40% chance of loss

>7% of GDPCASUALTIES

70,000+ in a year

Philippine Catastrophe Risk Model (2014)

PHILIPPINES DRFI STRATEGY

KEY STEPS AND INITIATIVES ON THE NATIONAL LEVEL

SALIENT FEATURES: contingent credit line that provides immediate liquidity funds become available after the declaration of a state of calamity

Disaster strikes President declares

State of Calamity

GPH applies for withdrawal

under the loan (drawdown period valid

for up to 15 years)

Amounts repaid during

drawdown period are

available for

subsequent use

MECHANICS OF THE SPECIAL DRAWDOWN FEATURE

CAT-DDO Loan (2011, 2016)

PHILIPPINES DRFI STRATEGY

KEY STEPS AND INITIATIVES ON THE NATIONAL LEVEL

PHILIPPINES DRFI STRATEGY

Local Disaster Resilience

Insurance Fund for provinces:

supported by World Bank

Philippine City Disaster Insurance

Pool for cities: supported by Asian

Development Bank

PHILIPPINES DRFI STRATEGYKEY STEPS AND INITIATIVES ON THE LOCAL LEVEL

PHILIPPINES DRFI STRATEGY

KEY STEPS AND INITIATIVES ON THE LOCAL LEVEL

Developing a catastrophe risk insurance facility for

local governments

DOF is working with the World

Bank in envisioning a pool that will

provide LGUs immediate liquidity

after a disaster. Results of initially

conducted study are as follows:

Initial actuarial analysis indicates at

least 20% reduction in premium and

a 50% reduction in capital required to

withstand an extreme event.

GSIS will be the insurer. In this

regard, substantial capacity building

is being conducted.

LGU 1

LGU 2

…

LGU n

INSURANCE

PREMIUM

INSURANCE

PAYOUT

REINSURANCE

GROWTH

RESERVES

PREMIUM PAYOUT

Local Disaster Resilience Insurance Fund

PHILIPPINES DRFI STRATEGYPHILIPPINES DRFI STRATEGYKEY STEPS AND INITIATIVES ON THE LOCAL LEVEL

Philippine City Disaster

Insurance Pool

PHILIPPINES DRFI STRATEGYPHILIPPINES DRFI STRATEGYKEY STEPS AND INITIATIVES ON THE LOCAL LEVEL

DOF is working with the Asian

Development Bank, in

structuring an insurance pool that

will provide cities immediate

liquidity after a disaster, especially

an earthquake.

Pilot program will cover 10

selected cities located nationwide.

PHILIPPINES DRFI STRATEGY

Linking disaster risk

financing and social

protection

Broadening private property

catastrophe risk insurance

and micro-insurance

coverage

Potential Residential

Insurance Pool (World

Bank, IC and PIRA)

KEY STEPS AND INITIATIVES ON THE INDIVIDUAL LEVEL

PHILIPPINES DRFI STRATEGY

KEY STEPS AND INITIATIVES ON THE INDIVIDUAL LEVEL

Property Catastrophe Risk Insurance

Pool DOF is working with the World Bank, the Insurance Commission, and the

private sector to develop this initiative.

Aim is to increase financial protection of households, small and medium

enterprises, agricultural producers and the poorest against natural disasters.

World Bank, in partnership with IC and PIRA, is structuring a Catastrophe

Risk Insurance Database.

CATASTROPHE RISK

INSURANCE DATABASE

Property Insurance

Policy Database

Property Insurance

Loss Database

PARAMETRIC

INSURANCE PILOT

A collaborative effort between the National and Local levels, this initiative is a PHP1 billion

transaction executed through the Special Provision 1c of the

National Disaster Risk Reduction and Management (DRRM) Fund

Section of the 2017 General Appropriations Act (Republic Act

10924). The Pilot provides typhoon and earthquake cover for

NGAs and 25 highly vulnerable LGUs.

PARAMETRIC

INSURANCE PILOTSALIENT FEATURES

Risk is transferred outside the Philippines

Quick disbursing

and flexibleAllows for

partial payoutWill cover vulnerable provinces

LONG TERM GOAL FOR INCREASING

RESILIENCY

Continue working with Development Partners on strengthened implementation of the DRFI Strategy, especially at the individual level.

Draft Bills establishing the Department of Disaster Resiliency

Creation of the Sustainable Finance Inter-Agency Group which will oversee the development of a green and sustainable country.