ADB Promotes Asian Risk Financing to Guard against Disasters

Losses from natural disasters such as hurricanes and floods have risen faster than Asia-Pacific’s economy has expanded, according to a report from the Asian Development Bank (ADB), which recommends regional governments find ways to offer disaster risk financing instruments such as calamity funds, tax credits and catastrophe (cat) bonds to strengthen disaster resilience.

“Asia’s economic gain is being eroded by disasters, often hitting the poorest hardest,” said Bindu Lohani, ADB’s vice president for knowledge management and sustainable development. “As the global region most vulnerable to climate change, we no longer have a choice but to focus on disaster risk management.” Natural hazards continue to cause significant loss of life in the region. Between 1970 and 2010, 1.7 million hazard-related deaths were recorded in Asia and Pacific, representing 51% of the global total.

According to the bank’s report, titled
‘Investing in Resilience – Ensuring a Disaster-Resistant Future’
, significant investments to strengthen disaster resilience can reverse the trend. The report suggests that a range of factors contribute to the increasing disaster losses of recent years, such as inadequate risk data, weak and misaligned incentives, poor legislative and regulatory frameworks and enforcement, disjointed government, limited funding and power disparities.

The report examines the instruments and mechanisms that currently exist in Asia to protect against disasters, and offers solutions for stronger disaster resilience, including how disaster risks can be financed through disaster risk insurance and reinsurance, cat bonds and other vehicles. A wider range of disaster risk financing instruments is needed for Asia and the Pacific, which lags behind other regions in developing innovative financial solutions for disaster resilience. Less than 5% of disaster losses in developing Asia are insured, against 40% in developed countries.

To overcome these challenges, the report identifies critical next steps to better assess, reduce and manage disaster risk. It recommends that national and sub-national governments develop and implement comprehensive disaster risk financing strategies to provide post-disaster support to strengthen financial resilience.

Most Asian countries have disaster handling capabilities, but few have adequate provisions for financing post-disaster losses and rehabilitation. Disaster losses are expanding at a faster pace in Asia due to environmental degradation, climate change, demographic pressures, and widespread failure to consider disaster risk in designing and locating many critical development investments.

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