Catastrophes cost $520bn annually, can be reduced: World Bank

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According to a new report from the World Bank and the Global Facility for Disaster Reduction and Recovery (GFDRR), natural catastrophes push some 26 million people into poverty and cost a staggering $520 billion in losses, each year, underlining the importance of disaster risk finance and improved disaster resilience.

World Bank logoThe report, which examines 117 countries, states that the impact that natural catastrophe events have on well-being each year, measured in terms of lost consumption, is greater than asset losses, and is actually equivalent to approximately $520 billion a year.

It’s yet another statistic that highlights the importance of integrating disaster risk financing and risk transfer, as well as insurance, reinsurance and capital markets capacity, into the disaster resilience plans of countries around the world.

That’s a staggering amount, and the World Bank claims that it outstrips other estimates by as much as 60%, suggesting that the impact natural disasters has on societies, and the economic impact of such events on poverty are much greater than previously understood.

This report, along with other discussions surrounding the impact of weather and climate-related events on the financial and economic security of societies, underlines the importance of risk transfer solutions in improving disaster resilience and the preparedness of countries and societies to respond to large loss events.

This includes catastrophe bonds, catastrophe risk pools, and resilience packages that are designed to protect against natural catastrophe events and also promote improved disaster resilience so that emerging regions in particular are better equipped to cope with extreme climate and weather-related events.

“Severe climate shocks threaten to roll back decades of progress against poverty. Storms, floods, and droughts have dire human and economic consequences, with poor people often paying the heaviest price. Building resilience to disasters not only makes economic sense, it is a moral imperative,” said Jim Yong Kim, World Bank Group President.

The report, titled ‘Unbreakable: Building the Resilience of the Poor in the Face of Natural Disasters,’ explores a number of measures that can be taken in order to build resilience to natural disasters, all of which will benefit from both public and private sector efforts and collaboration.

These include, the implementation of early warning systems for perils such as tsunamis, for example, financial services that help rebuild communities (including the various forms of catastrophe insurance), social safety nets that protect the most vulnerable, dikes, retrofitted buildings and land-use plans conserving the environment and forests, explains the World Bank.

Interestingly, the report claims that the measures outlined above could help countries and communities save $100 billion a year, by improving resilience and preparedness against natural disasters through public-private sector partnerships that look to promote increased resilience but also utilise insurance, reinsurance, and capital markets solutions to improve disaster risk financing needs.

As noted in the report, typically the world’s most vulnerable and poorest are the most susceptible to natural disaster events, which can be seen in places such as Africa, Asia, Latin America, and elsewhere.

Stephane Hallegatte, a lead economist at the GFDRR and lead author of the report, said; “Countries are enduring a growing number of unexpected shocks as a result of climate change.

“Poor people need social and financial protection from disasters that cannot be avoided. With risk policies in place that we know to be effective, we have the opportunity to prevent millions of people from falling into poverty.”

During the COP21 meeting of governments in Paris in 2015, leaders from around the world underlined the importance of risk transfer and the need to improve disaster resilience in the face of climate change and its potential to drive increasingly frequent and severe weather events.

And now, with governments and global organisations meeting in Marrakech for the COP22 United Nations (UN) climate change conference, the World Bank and the GFDRR have again highlighted the importance of disaster risk finance and resilience measures in addressing a growing and important issue.

$520 billion is truly a staggering amount, but with the help of both the public and private sector, and innovative approaches from re/insurers and ILS players to creating new solutions that facilitate the expansion of insurance or reinsurance solutions to those that need it most in an effective and affordable manner, there’s potential to do good for both the risk transfer industry and societies across the world.

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