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DISASTER RISK FINANCING
PHILIPPINES Roberto B. Tan
Step Forward for Building Disaster Resilience in the Philippines: Emerging Strategies for Disaster Risk Reduction and Financing
30 November 2015 | Paris, France
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Background
§ Typhoons Ondoy (Ketsana),
Pepeng (Parma), Sendong (Washi) and Pablo (Bopha): Ø 3,000+ lives, affected 10 million+
people Ø economic damage and losses
amounting to approximately PHP256 billion (US$5.77 billion)
§ Typhoon Yolanda (Haiyan) in 2013:
Ø 6,201 lives Ø approximately PHP571 billion
(US$12.87 billion) in damages u 0.9% of GDP in 2013 u 0.3% of GDP in 2014
Natural Disasters: Philippines Context
THE “NEW NORMAL”
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Background
§ Risk assessments tools show that much worse storms are possible
§ A Yolanda-like storm could
cross closer to Metro 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 Context
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Overall DRFI Strategy § Development outcomes:
ü sustain economic growth; protect gains from natural disaster shocks ü reduce impact on the poorest and most vulnerable people
§ DRFI on three levels: Philippine Development Plan
NDRRM Plan National CC Action Plan
The DRFI Strategy SOVEREIGN
LOCAL GOVERNMENT
HOUSEHOLD
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A. Sovereign Level
① Cat DDO loan (2011); JICA SECURE (2014) ② Philippine Catastrophe Risk Model
(2014) ③ Risk transfer financial instruments
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A. Sovereign Level
① Cat DDO loan (2011) & JICA SECURE (2014) ② Philippine Catastrophe Risk Model
(2014) ③ Risk transfer financial instruments
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Cat DDO Loan (2011) & c
§ Objective: To enhance the capacity of the Government of the Philippines to manage the impact of natural disasters.
§ Three action areas: ① strengthening institutional capacity ② mainstreaming disaster risk management into development
planning ③ management of the government’s fiscal exposure to natural
hazard impacts
§ Special Feature ü contigent credit line that provides immediate liquidity ü funds become available after the declaration of a state of
emergency
Disaster Risk Management Development Loan with a Catastrophe Deferred Drawdown Option
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A. Sovereign Level
① Cat DDO loan (2011) & JICA SECURE (2014) ② Philippine Catastrophe Risk
Model (2014) ③ Risk transfer financial instruments
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Philippine Catastrophe Risk Model (2014)
§ The Catastrophe Model for the Philippines was completed in May 2014 with the following outputs: ① Historical database for natural disasters ② Geo-referenced catalogue of all national government
assets ③ Disaster Risk model which will generate economic
loss values for potential disaster events ④ Assistance in developing a risk transfer instrument
§ The model is used in: ü determining the government’s contingent liabilities in the face of disasters ü providing foundation in designing risk transfer instruments
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Philippine Catastrophe Risk Model (2014)
Future disasters losses could overwhelm Government’s ability to finance the cost by itself: § Long-term Average Annual Loss
Ø 206 billion PHP (US$4.6 billion) or 1.8% of GDP in direct losses to public and private assets
Ø Additional 42 billion PHP (US$941 million) in emergency response losses (3.6% of total government expenditure)
§ Losses equal to those associated with Typhoon Yolanda (Haiyan) are estimated to occur with a 3% annual probability.
§ In the next 25 years:
Ø 40% chance of experiencing a loss of more than PHP840 billion (US$18.8 billion) or equivalent to 7% of GDP
Ø casualties exceeding 70,000 people in one year
Source: DOF catastrophe risk profile for the Philippines supported by the World Bank-GFDRR
Notable Results
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Sovereign Level
① Cat DDO loan (2011) & JICA SECURE (2014) ② Philippine Catastrophe Risk Model
(2014) ③ Risk transfer financial
instruments
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Risk transfer instruments (under development) § The Department of Finance together with the
World Bank has finished developing the technical details of a parametric insurance policy (i.e. Triggers) § Exploring options and structures to properly utilize the
insurance feature we have developed
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B. Local Government Level
§ The government is considering the pilot of an LGU catastrophe pool to provide LGUs (city and province level) with immediate liquidity after extreme disaster events. § GSIS is developing its capacity to be able to provide parametric insurance policies in line with this initiative
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C. Household Level
§ PIRA, together with the Insurance Commission is conceptualizing a potential residential insurance pool providing disaster risk coverage.
§ The pool is intended to increase resilience of Filipino households against extreme natural calamities.
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§ HDMF Loans — HDMF may be directed to require catastrophe insurance from the
public as a condition for obtaining loans.
§ Occupancy/Business permits — Section 458(a)(3)(ii) of the LGU Code expressly authorizes the
sangguniang panlungsod [municipal council] to fix the conditions for issuance of business permits.
— Can include catastrophe insurance coverage as a condition
§ Required security for the approval of bank loans — Section 106 of the Central Bank Act
Required Security Against Bank Loans. — In order to promote liquidity and solvency of the banking system, the Monetary Board may issue such regulations as it may deem necessary with respect to the maximum permissible maturities of the loans and investments which the banks may make, and the kind and amount of security to be required against the various types of credit operations of the banks.
C. Household Level Potential Regulatory channels to support the initiative
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Summary DRFI STRATEGY OF THE PHILIPPINES
SOVEREIGN LEVEL ① CAT-DDO loan (2011)
& JICA SECURE (2014) ② Philippine Catastrophe
Risk Model (2014) ③ Risk transfer financial
instruments.
LOCAL GOVERNMENT LEVEL Risk transfer solutions for
LGUs and GSIS capacity building
HOUSEHOLD LEVEL Residential insurance
pool
World Bank GFDDR
DFID
ADB PIRA IFC
JICA
Overall Strategy Partners
Partners
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Disaster Risk Finance Strategy
Sovereign Level
Local Gov’t Level
Household Level
National Calamity Fund /Quick
Response Funds
Sovereign Risk Transfer
Public Assets Insurance
Local Calamity Funds
Microinsurance
Residential Catastrophe
Insurance Pool
Enhanced Safety nets
LGU Catastrophe Insurance Facility
Public Assets Insurance
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Sovereign Risk Transfer
• Emerging Structure (WB) — Program Loan with Catastrophe Protection — Catastrophe Protection triggered by Haiyan-
level events — Protection will have multi-tiered modelled loss
triggers. • Updates — DOF working together with WB to address
structuring issues, legal or otherwise.
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Sovereign Risk Transfer
• Emerging Structure — Program Loan with Catastrophe Protection — Catastrophe Protection triggered by Haiyan-
level events — Protection will have multi-tiered modelled loss
triggers. • Updates — DOF working together with WB to address
structuring issues, legal or otherwise.
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• Modelled after the Turkish Catastrophe Insurance Pool (TCIP) — Envisioned to cover both earthquake and
typhoon risks — Substantial support from insurers and reinsurers
players in the Philippines. • Status: DOF studying potential regulatory
mechanisms to encourage demand for disaster risk insurance.
Residential Catastrophe Insurance Pool
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Disaster Risk Finance Strategy
Sovereign Level
Local Gov’t Level
Household Level
National Calamity Fund /Quick
Response Funds
Sovereign Risk Transfer
Public Assets Insurance
Local Calamity Funds
Microinsurance
Residential Catastrophe
Insurance Pool
Enhanced Safety nets
LGU Catastrophe Insurance Facility
Public Assets Insurance
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Local Government Insurance Catastrophe Pool
• Several provincial LGUs have expressed interest in availing parametric insurance — Will provide quick liquidity during extreme disasters — World Bank has suggested a structure for LGUs’
consideration — Estimated premiums: PHP10 – 20 Million per
annum (about USD201k-USD425k) • People’s Survival Fund — Potential source of NG premium subsidies to LGU — Local climate financing source for LGUs/
communities
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• Modelled after the Turkish Catastrophe Insurance Pool (TCIP) — Envisioned to cover both earthquake and
typhoon risks — Substantial support from insurers and reinsurers
players in the Philippines. • Status: DOF studying potential regulatory
mechanisms to encourage demand for disaster risk insurance.
Residential Catastrophe Insurance Pool
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DISASTER RISK FINANCING
PHILIPPINES