Using probabilistic models to appraise and decide on sovereign disaster risk financing and insurance

Research, Preprint OPEN
Ley-Borrás,Roberto; Fox,Benjamin Daniel;
(2015)
  • Publisher: World Bank, Washington, DC
  • Subject: FLOODS | RISK ASSESSMENT | BUILDING CODE | CRITERIA | TAXES | DISASTER REDUCTION | GOVERNMENTS | LOSS | BANK | OUTCOMES | PROPERTY | LIABILITIES | DISASTER RISK | RISK MANAGEMENT | EFFICIENCY | MITIGATION | NATURAL CATASTROPHES | DISASTERS | RISK‐TRANSFER | NATURAL HAZARDS | INVESTMENT | RESERVES | HURRICANE | FLOOD | PHYSICAL DAMAGE | PROGRAMS | DAMAGE | INDUSTRY | RISK MITIGATION | NATURAL DISASTER | DISASTER PREVENTION | Banks&Banking Reform,Labor Policies,Hazard Risk Management,Insurance&Risk Mitigation,Natural Disasters | NEUTRALITY | RISK EXPOSURE | CONTINGENT LIABILITY | STRATEGIES | CAPITAL MARKETS | INSURANCE COMPANIES | DISASTER RISK REDUCTION | CONTINGENT LIABILITIES | INFORMATION | STORMS | OUTPUTS | INSURANCE | INSURANCE INDUSTRY | NATURAL DISASTERS | EMERGENCY | LOSSES | NATURAL HAZARD | DROUGHTS | REVENUE | RISK TRANSFER | CREDIT | NATURAL PHENOMENA | CREDIT INSURANCE | LOANS | EARTHQUAKE | CATASTROPHES | CATASTROPHIC EVENTS | PUBLIC POLICY | SOVEREIGN RISK | EFFECTS | MARKETS | HURRICANES | DEBT | SOCIAL DEVELOPMENT | INCOME | DISASTER RISKS | RISK REDUCTION | DISASTER MANAGEMENT | PRODUCTION | POLICIES | TRAINING | EARTHQUAKES | DISASTER | RELIEF OPERATIONS | REDUCING POVERTY | SNOW STORMS | RELIEF | PREVENTIVE ACTIONS | VALUE | RESPONSE TO DISASTER | COVERAGE | TRANSPORT | RISK AVERSION | RISKS | MANAGEMENT | FINANCING SOURCES | INFRASTRUCTURE | DISASTER RESPONSE | ORGANIZATIONS | TSUNAMIS | RECONSTRUCTION | RISK | SOCIAL BENEFITS | FINANCE | FINANCIAL RISK

This paper presents an overview of the structure of probabilistic catastrophe risk models, discusses their importance for appraising sovereign disaster risk financing and insurance instruments and strategy, and ... View more
  • References (5)

    1. Include  metrics  for  all  fundamental  objectives.  Financial  and  infrastructure  cost  are  obvious  candidates to be included in the models, but also human costs (e.g., hunger, illness, death, livelihood  loss)  and  development  cost  (i.e.,  stagnant  or  negative  economic  development),  and  any  other  consequence  associated  with  the  specified  fundamental  objectives,  should  be  part  of  the  model:  those are the issues the decision makers care about. 

    2. Allow for the simultaneous appraisal of the instruments that form a strategy. Each of the selected  instruments may address different types of risks, different geographical locations and different time  horizons,  but  they  are  interrelated  and  it  is  best  to  appraise  them  together  and  get  a  probability  distribution of the consequences of the strategy, not only of its components. 

    3. Include uncertainty about amount and availability time of post‐disaster funds. An advantage of exante financial instruments is faster and less uncertain availability of funds; that should be reflected in  the risk models.  

    Mechler,  R.  (2005)  Cost‐benefit  analysis  of  natural  disaster  risk  management  in  developing  countries.  Eschborn:Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ), quoted in (Michel‐Kerjan et  al. 2012). 

    Michel‐Kerjan, E., S. Hochrainer‐Stigler, H. Kunreuther, J, Linnerooth‐Bayer, R. Mechler, R. Muir‐Wood, N.  Ranger,  P.  Vaziri,  M.  Young  (2012)  Catastrophe  Risk  Models  for  Evaluating  Disaster  Risk  Reduction  Investments  in  Developing  Countries,  Working  Paper  #  2012‐07,  Risk  Management  and  Decision  Processes Center, The Wharton School, University of Pennsylvania. 

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