Natural Disasters: Promoting a Proactive Approach

The World Bank, along with the European Union, United Nations Development Program (UNDP), bilateral donors and the Turkish government, quickly put together a comprehensive program to guide the reconstruction process.

The Bank’s allocated post-disaster funds were, for the first time in its history, equally split between reconstruction activities and introducing interventions to minimize economic and social consequences of disasters.

This reconstruction effort, along with recent projects in other borrowing countries, set a new standard for managing natural hazards.

“Hazard risk management had been evolving over the years, but the Marmara earthquake was a milestone in our region that precipitated this new approach focused on prevention and mitigation,” says Christoph Pusch, World Bank Senior Environmental Engineer in the East Europe and Central Asia Region ,who is the project’s team leader.

While the reconstruction program financed housing and infrastructure for the victims and their communities, the project’s intervention component revolved around:

• introducing a modern disaster insurance scheme (Turkish Catastrophic Insurance Pool).
• establishing a new emergency management entity (Turkish Emergency Management Agency).

“These interventions have sparked interest in other countries in Eastern Europe and Central Asia to become more proactive,” says Pusch. “Poland, Turkey, Russia and Kyrgyzstan are now requesting assistance for risk management. We are currently negotiating a risk mitigation project with Romania. It is the first time that the country has come to us with such request. We are observing similar trends in other regions as well. In South and East Asia, Latin America and Caribbean. There is an increased demand for hazard risk management projects.”

The Bank is at the forefront of promoting a proactive approach to disaster management. But this is only the beginning.

From Post-Disaster Recovery to Disaster Prevention

Disaster management constitutes a significant portion of Bank lending. Between 1980 and 2003, the Bank provided some $14 billion for natural-disaster reconstruction and mitigation. When counting those projects that include a disaster-related activity, the lending amount increases to $43 billion.

The Bank is changing its policy on disaster management and funding. It is moving toward a new direction based on risk reduction and financing, with an emphasis on both disaster prevention and post-disaster recovery.

This proactive approach to natural hazards will strive to:

• incorporate disaster management in all Bank development projects to ensure that all future World Bank projects help avert disasters.
• encourage governments through different incentives to reduce the risk of disasters and to finance risk ahead of the event.

But getting countries to partake in this approach requires a complete change in attitude towards disasters and may take years to institute.

Proactive Risk Management: a Tough Sell to Poor Countries

Many poor countries regard disaster management as a rich country’s luxury. Selling the concept of disaster and risk management within the country can be difficult.

Governments have set up the expectation that they are responsible for post-disaster recovery.

Many people perceive disasters as god’s will. They don’t think one can prepare in advance to lessen the impact, explains Eugene Gurenko, Senior Insurance Specialist with the World Bank.

Politicians and decision-makers have more immediate needs to address, and it may be difficult to get them to focus on disaster management. The odds are they will not be in office when a disaster strikes. With the current system where the international community inevitably comes through with post-disaster recovery, decision-makers have little economic pressure and few political incentives to engage in risk mitigation.

“The Bank hopes this new direction of hazard risk management will create appealing incentives for countries to better prepare for disasters,” says Gurenko.

The Bank is also reaching out to finance ministers to introduce the concept of risk management and get them to think about potential losses from disasters when planning their budgets.

This April, ministers from five countries will convene at a research institute in Vienna for training on how disasters adversely impact budget projections and economic growth. The premise being that even though poor countries find risk management to be an expensive proposition, costs can be higher if they do not take disaster planning into account. This is because funds are often diverted from existing investment and development programs to finance disaster-relief efforts.

For example, "There is a bridge in Honduras that has been rebuilt nine times with recovery funds," says Gurenko.

Customized Approach Needed to Fund and Insure Risk

Even when a country plans for a disaster, a natural hazard will incur some economic and infrastructure losses. This remaining risk could be financed several ways, depending on the country’s profile and the type of disaster.

“Designing an optimal country strategy requires custom tailoring. It depends on the size and growth of a country’s economy, its ability to borrow and access reinsurance markets, its levels of insurance penetration,” says Eugene Gurenko, Senior Insurance Specialist with the World Bank.

Risk can be financed through a combination of insurance, savings, federal reserves, World Bank and IMF lending, or donor funding, depending on the country's needs.

Honduras, a small economy prone to highly catastrophic events caused by unusual weather patterns known as El Nino, can use insurance to take care of highly unlikely but potentially severe economic loss. It can be supplemented with national reserves and lending mechanisms.

But for countries exposed to frequent severe events—such as Bangladesh and floods—insurance is a bad idea because disasters happen too often. Here, it is better to focus on preventive actions such as changing land-use policies, and devise an appropriate risk financing arrangements with the Bank, the IMF and other donors, Gurenko says.

A Working Country Model

The Turkish Catastrophic Insurance Pool, created following the Marmara earthquake, is a good model of how countries can use market-based approaches to prepare for catastrophic events. The Pool is an intermediary between the reinsurance markets and homeowners. By combining funds from many contributors, the pool allows poor homeowners to buy affordable insurance coverage from commercial reinsurance markets.

There are 12 similar risk management programs in the world—all in developed countries, except for Turkey. However, Turkey has achieved the highest penetration level of some 17 percent, says Gurenko.

The successful implementation in Turkey has generated interest in other developing countries, and the Bank is currently advising 10 other countries on how to set up similar programs. "India, China, Romania and the Philippines are among the interested ones,” says Pusch.

Related Links
Eluding Nature's Wrath
Cost of Natural Disasters
Reconstruction Process Underway in Bam, Iran
Earthquakes in Turkey
Lessons From the Brink
Youth Design Risk Management Projects
Natural Disasters: Resource Links