Who should bear the brunt of disasters?
As I’ve said in my previous article, one of the missing links in our disaster risk management efforts is the involvement of the insurance market in ensuring faster recovery and reconstruction without necessary impinging more financial harms to victims of disasters, both for individuals and communities. Based on our experiences, poor victims – farmers, small and medium enterprises, and poor families – are left at their own to rebuild and restore their damaged physical assets. Even government’s destroyed infrastructure facilities suffer much from inadequate repair and maintenance assistance to the point that they pose abnormal and inefficient community and business operations for several months and even years after disasters.
While there are available calamity funds coming from the government, studies would show that the amounts available from these fund facilities are quite meager to match even just a quarter the total value of damage to properties, crops and production, and public facilities. For the damages caused by Typhoons Ondoy and Pepeng last year, for example, the available funds from all government and private sector sources of disaster risk financing could cover only 1.5 percent of total economic damages and about 3 percent of total public sector disaster recovery and reconstruction needs.
In times of disaster, the national government had always tried to provide for financial assistance to communities. The implication, however, is that with the scarce financial resources we have in our national coffer, disasters or catastrophic events would surely push up public spending beyond legislated budgetary ceilings which would result to higher public deficits and debts. When the national government extends financial support and assistance to localities and communities, it also exposes itself to greater and more significant financial risks given the enormous efforts required for physical, social and economic reconstruction and recovery.
Many developing countries have recognized the importance of an insurance mechanism as a critical factor in managing risks or natural hazards and disasters. The problem for these economies, like the Philippines, is that the insurance market only provides catastrophe or disaster insurance coverage to a few governments which could afford the high insurance premiums and where the degree of damage could easily be estimated and quantified or measured. Given these, obviously, the Philippines is not an easy target of the insurance market. Based on data from various studies, insurance penetration in the country has been very low, where non-life insurance premiums collected amount to only about less than a percent of our GDP.
A more pro-active and responsive means to transfer risk and to ensure immediate recovery after disasters is a laudable option. The cost of relief, rehabilitation and redevelopment should in fact be passed on to or spread among economic and financial agents other than the government or the affected and vulnerable individuals, enterprises and communities. These entities, which are on the ball for greater and more promising financial and economic opportunities to derive profits and benefits, are in a positive position to absorb such risks. Yet, the operations of these entities should not be limited to the Philippines alone or any similarly disaster-prone economies, otherwise, they would certainly be at the losing end. Perhaps an inter-country or cross-economy insurance cooperation is a mechanism that should be carefully considered. Within the Asian region, there are several countries with the same fate as the Philippines in terms of vulnerability to risks and disasters. This is just an ideal thought because in the real world, the challenge has always been the difficulty of getting the private sector involved, specifically the insurance industry, in sharing the risks of catastrophe and natural disasters.
There are few but excellent practices in the past from other countries which we could adopt as models. The government should initiate the effort to explore possibilities and create solutions to ensure faster means of post-disaster recovery. If played well, venturing into risk financing and insurance offers a great potential for good investment returns as well as to help secure and protect the country’s hard-earned development gains. A mechanism on how to go about it is a challenge that our financial and disaster risk managers have to face. Yet again, the leadership in the government should initiate this and make it a development priority.
Feel free to send your comments to nic_agustin@yahoo.com.
Erratum to the previous article Rainy season, La Lina and disasters, the fourth sentence in paragraph 6 should read: “These figures are a bit misleading; for example, typhoons Ondoy and Pepeng caused P206 billion (not million) in damages, or roughly 10 times the annual average.”
