Natural disasters do not discriminate, affecting coastlines and mountain villages, prairies and plateaus, major and minor cities—in corridors largely populated by the poor. Committing financial resources before potential disasters, recent research at The World Bank Group indicates, is smart. An impact evaluation of FONDEN, Mexico’s fund for natural disasters, found that it increased post-disaster gross domestic product by 2–4 percent, a big benefit.
Ex-ante approaches to finance potential disasters require three things:
- A sound, coordinated plan for post-disaster action agreed in advance
- A fast, evidence-based process to make decisions
- Financing on standby to ensure implementation of the plan
Ex-ante approaches provide the foundation for fast, reliable, cost-effective response, as well as for reducing and adapting to changing risks. These solutions minimize the cost and optimize the timing of meeting post-disaster funding needs without compromising development goals, fiscal stability, or well-being. And, they are an integral part of disaster and climate risk management.
Developing these solutions also requires input from scientists, public officials, front-line implementers, and financial specialists:
- Technological advances allow scientists to better understand and model the probability of disasters; this helps reduce cognitive bias and balance disaster planning.
- Public officials help to make difficult tradeoffs over who or what to protect, and explain it to the public; a good plan comes from a well-communicated political choice.
- Front-line implementers bring knowledge and experience to draw up a practical plan, prepare for potential implementation, and ultimately carry the plan out on the ground.
- Financial specialists put a cost on potential disasters while making sure promises are credible and kept; financial planning is the glue the holds a disaster risk plan together.
Where financing is committed before potential disasters, governments are showing how a better system is possible. In 1985, an earthquake in Mexico City caused over 10,000 deaths, cost over US$11 billion, and triggered a national dialogue followed by government action on disaster preparedness. By 1999, FONDEN served to insure timely reconstruction of the federal and part of the subnational infrastructure and recovery from disaster losses. In 2012, a 7.4 magnitude earthquake in Mexico City resulted in no human casualties (early warning systems and public safety awareness) and negligible damage to buildings (more stringent building codes).
The Disaster Risk Financing and Insurance Program, a partnership of the World Bank and the Global Facility for Disaster Reduction and Recovery, is working with over 60 countries around the world to develop, implement, and learn from ex-ante financial protection solutions against disasters. And, these solutions work.
1. A Plan—But Not Just Any Plan (back to top)
- To combat these biases, investing in science-based risk information and in clear communication of this information ensures that everyone knows what contingencies they need protection for.
2. Sound Decision Making—But Based on Good Rules, Good Data (back to top)
- Ground data on damage to/loss of people and buildings
3. Standby Financing—But Based on Smart Choices of Instruments and Triggers (back to top)
- When designing and implementing disaster risk finance strategies, details matter.