“Disaster Risk Financing and Insurance: Some Brief Opening General Remarks”

Yunus Carrim
Deputy Minister Cooperative Governance and Traditional Affairs, South Africa

COP 17
DISASTER RISK FINANCING AND INSURANCE ROUNDTABLE
eThekwini
5 December 2011

I was asked to present the opening remarks in this session. Because our Department is one of the main organizers of this roundtable, and the National Disaster Management Centre falls within our Ministry’s portfolio, I agreed. But, on reflecting on the topic of this roundtable last night, it seemed to me that it would have been better if these introductory remarks were offered by our Minister or Deputy Minister of Finance. But I’d agreed to do it. So here I am, for what it’s worth!

My brief input is aptly entitled “Disaster Risk Financing and Insurance: Some Brief Opening General Remarks”.  Mine will be a general political, not technical, input. The technical issues, in any case, most of you know better than me, and I am interested to hear from you on. Anyway here I am. And here we go…

What is glaringly obvious is that we are going to experience many more climate-related disasters in future. And if we don’t emerge from COP 17 with a significant global agreement, that’ll be even more of a reality. So, in the first instance, if you like, if we are serious about insurance against disasters, we should secure some significant global consensus on how to reduce climate change by the end of COP 17.
But even if that consensus were to come, we still have to pay much more attention to disaster risk financing and insurance. We would be foolish not to. And would, in fact, be inviting disaster.

Ironically, the very countries which are poor and don’t have the resources and capacity to plan for disaster risk financing and insurance have the most to lose by not doing so. So it is always – its poor countries and the poor in all countries who bear a disproportionate burden of the cost of disasters.     

The financial consequences of climate-related disasters on governments and people are going to be far higher in future, even if they are already huge. Yet the funds and other resources available to manage these disasters are shrinking with the global economic and financial crisis that confronts us. But it’s because of this – the increasing costs of disasters and the decreasing funds and resources – that governments have to be far more effective in disaster risk financing and insurance.

But governments alone can’t do this. As with much else related to climate change, we need the help of the private sector, international organisations, technical experts, civil society and individuals. All of us need to work much more cooperatively. It’s in the interests and self-interests of all of us to do so.
If there’s anything that communicates how inter-related and interdependent we are, it must surely be climate change? We’re all in the same boat like never before. And so we have to act together like never before!

The massive destruction of lives, livelihoods, infrastructure, homes, businesses, crops, livestock and more, through disasters, and the huge negative impact they have on the GDP of a country bears on all of us, including those of us not immediately or directly affected.
Most of these disasters, as we well know now, are human-made. And so we can, working together, through a combination of adaptation and mitigation measures, manage these disasters far better and, importantly, reduce them.

Disaster Risk Financing and Insurance has to be an increasingly important aspect of our adaptation and mitigation responses to climate change. As governments we must lead the way, and create the space for others to cooperate with us.
We have to plan better. This is our first insurance. Plan not just our budgets better to take into account disasters, but plan in every sense to reduce our vulnerability to disasters.

The pressures on the fiscus can certainly be reduced with an effective Disaster Risk Financing and Insurance strategy. An effective strategy can help to avoid macro-economic shocks to the fiscus and negative consequences for economic development. It can contribute to building the resilience of government, businesses and individuals, of the country generally. And resilience is what we certainly need in the face of climate change challenges.
There has, in recent years, been considerable innovation in disaster risk financing and insurance. You know more about this than me, and you will be talking about this in this roundtable. As governments we should encourage more work in this area.

From what little I know, the cooperation of 22 countries in the Caribbean on dealing with disaster risk financing and insurance seems very impressive. Perhaps there are lessons there for us in the Southern African Development Community (SADC) countries? I gather there is also significant cooperation among countries in Eastern Europe and Central Asia. The relevant fund, I understand, in this case is owned by the governments but managed by the private sector, in an example of an effective public-private partnership. Mexico, too, I’m told, is quite advanced in dealing with disaster risk financing and insurance.

Well, let’s share these examples of good practice and learn from them.
From what I can gather, insurance penetration for catastrophe risk remains low, even in developed economies. There is a need to increase access to these products at all levels within all countries.

Obviously, crucial to the success of disaster risk financing and insurance, is the role of the private sector. As governments we need to do everything possible to encourage the participation of the private sector. It is sometimes difficult to get the private sector involved, especially within developing societies, with our high risk and onerous regulatory environment. We need to make the policy and regulatory environment more conducive for the private sector to play an effective role in disaster risk financing and insurance. We have to also recognize the usual imperatives that drive the private sector and the risks that they have to take in this area, and engage with them on this, and persuade them that it’s also in their interests to get more involved.
As governments we need to encourage an ethos of disaster risk financing and insurance in the public sector and among businesses and individuals.
We could also, for example, assist subsistence farmers to develop into commercial farmers and encourage small emerging businesses to, within their constraints, make some modest allowance for risk management and insurance. There are many things we as government can do – and must do.

Let me quickly deal with how we do things here, in my own country, South Africa. In a nutshell, the National Treasury has a reserve or contingency fund set aside in the national budget each year from which funds for disasters are allocated.  The National Disaster Management Centre, as explained, falls within the portfolio of our Ministry. This year, for the first time, our Department was allocated money upfront to deal with disasters so that there can be a more swift response. There are also funds in other departments that can be released to deal with disasters. But the funds, of course, are never adequate, nor released quickly enough. However, even where the funds are released to provinces and municipalities, it is not as if there is capacity to spend it quickly and effectively.

The national government attempts to fund the rebuilding of public infrastructure affected by disasters. In the case of the indigent, the government offers limited financial assistance, but individuals and businesses are otherwise expected to provide for their own insurance. The government assists subsistence farmers, but commercial farmers have to cater for their own insurance.           
We need to do better in this area of disaster risk financing and insurance. And we can. That COP17 is being held in this country will help to put us under some pressure to do so.

But let me, before I part with you, welcome you here today, and thank you for attending. This roundtable has been organized through a partnership between the World Bank’s Global Facility for Disaster Reduction and Recovery, and South Africa’s National Disaster Management Centre and Ministry of Cooperative Governance and Traditional Affairs.

I hand over now to Mr Saroj Jha, Manager of the Global Facility for Disaster Reduction and Recovery (GFDRR) who will chair the session. Mr Jha is Program Manager and Head of the GFDRR Secretariat. Established in 2006, GFDRR is a partnership of 38 countries and 7 international organizations committed to helping developing countries reduce their vulnerability to natural hazards and adapt to climate change. Mr Jha also leads the World Bank global expert team (GET) on disaster risk management (DRM) and has dedicated himself to international and national disaster risk reduction and recovery programs in different regions of the world for more than two decades.

So welcome Mr Jha, welcome all of you! I hope we have a rewarding roundtable. And now that I’m over, let the real business begin…