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.
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