Closing the Protection Gap Issues and Initiatives Joaquim Levy - - PowerPoint PPT Presentation

Joaquim Levy

Closing the Protection Gap – Issues and Initiatives

Closing the Protection Gap

Joaquim Levy

“Today is the good old times of tomorrow.”

Karl Valentin (German actor, writer and comedian, 1882-1948)

Be mindful of the future despite the blissful ignorance of the present.

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Joaquim Levy

The impact of extreme weather on poverty is more devastating than previously understood.

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Source: Hallegatte, Stephane, Vogt-Schilb, Adrien, Bangalore, Mook, and Julie Rozenberg, 2016, “Unbreakable: Building the Resilience of the Poor in the Face of Natural Disasters,” Climate Change and Development Series (Washington, D.C.: World Bank Group).

Closing the Protection Gap

Joaquim Levy

Disaster risk reduction goes hand in hand with poverty reduction.

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Source: Hallegatte, Stephane, Vogt-Schilb, Adrien, Bangalore, Mook, and Julie Rozenberg, 2016, “Unbreakable: Building the Resilience of the Poor in the Face of Natural Disasters,” Climate Change and Development Series (Washington, D.C.: World Bank Group).

Joaquim Levy

Only about 17 percent of people in low- and middle-income countries use financial savings and insurance (45 percent in high-income countries). Even lower penetration of catastrophe risk insurance (<5 percent), except countries where certain insurance is compulsory (Turkey). Households and firms have to bear most losses, esp. in countries with limited fiscal means for post-disaster recovery and reconstruction. Insurance coverage in most emerging market and developing countries remains stubbornly low.

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Joaquim Levy

… not only stifles growth and limit lending opportunities but also makes it harder to implement projects that can benefit from World Bank assistance. World Bank’s dual goal of ending extreme poverty and raising shared prosperity only achievable if countries enhance their resilience to impact of natural disasters and climate risk. Insurance enhances post-disaster financial response capacity Mitigates immediate adverse impact and reduces poverty Long-term benefit on consumption/investment Free up fiscal space for counter-cyclical policies WBG has been a staunch advocate of inclusive insurance to close the “protection gap” …

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Joaquim Levy

Characterized by a strong collaboration with private sector Build donor-funded risk-absorption capacity Mobilize private resources for innovative forms of risk- sharing Disaster Risk Finance and Insurance Program (DRFIP) is donor- funded and emblematic of joint efforts with the private sector Two important aspects of inclusive insurance:

• Insurance as key part of recovery effort
• Insurance principles promoting better risk management

We have developed financial products and advisory services to increase countries’ financial resilience to disasters.

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Joaquim Levy

Disaster Risk Financing and Insurance Program (DRFIP) comprises four main areas …

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DRF for

Resilient Livelihood

DRF for

Agriculture DRF Analytics for Financial Decision-Making DRF Knowledge Management and Global Partnerships

DRF for

Budget Protection

Sovereign Disaster Risk Finance DRF for

Property Cat Insurance

DRF for Rapid Response Financing

$

Market Development

Closing the Protection Gap

Aim

• Enhance efficiency from grant-making to executed activities
• Move from top-down, parametric insurance coverage for sovereigns to

indemnity-based retail distribution

Joaquim Levy

Recognition of two major constraints: Institutional impediments to greater sovereign participation Disincentives for investment in prevention/preparedness

• Considerable moral hazard of fiscally-constrained

governments Strengthen local advocacy and improve economic terms Educating governments and public alike about the benefits

• f ex ante risk management

Regional risk pooling (e.g., Caribbean Catastrophe Risk Insurance Facility (CCRIF)) Making our efforts more effective and sustainable …

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Joaquim Levy

Caribbean Catastrophe Risk Insurance Facility (CCRIF SPC)

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First multi-country risk pool based on parametric insurance for hurricanes, earthquakes and – since 2013 – excess rainfall. Post-disaster financial liquidity within 14 days; since 2007, payouts totaling approx. US$38 million to 8 members. Expanded to countries in Central America through a partnership with COSEFIN (April 2015). By pooling catastrophe risks into a single diversified portfolio, countries’ premiums are about half of what it would cost if they were to purchase identical coverage individually from CCRIF.

Closing the Protection Gap

Joaquim Levy

New contingent financing instruments allow countries to access post-disaster liquidity Loans with catastrophe draw-down option (CAT DDO) Capital-at-Risk Notes Program Pandemic Emergency Financing Facility (PEF) But sustainable expansion of insurance coverage requires indemnity-based, retail-focused insurance products. More emphasis on ex ante financial planning to address incentive problems of governments in purchasing disaster risk insurance

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Joaquim Levy

Insurance as part of a comprehensive and multi-faceted approach to enhance the resilience of countries Enhanced infrastructure helps countries be better prepared to prevent financial damages Particularly important when post-disaster losses have a social component (i.e., positive externality) that cannot be covered by insurance But insurance is only one tool for financial protection …

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Joaquim Levy

Lower gap between investor risk appetite and riskiness of infrastructure investment in developing economies. Help governments develop a favorable legal environment and prepare projects, thus, lowering existing informational hurdles → Global Infrastructure Facility (GIF) Make range of World Bank guarantees more understood and understandable; also for political risk (via MIGA), which

• ften dominates investment decisions

Expand “climate-smart” financial products (e.g., green bonds) We facilitate infrastructure investments supporting actions against climate change, especially in emerging markets.

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Joaquim Levy

Thank you!

Closing the Protection Gap