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by
Dialogue on Water and Climate Munich Reinsurance Company, Munich, Germany
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>> Download complete report (PDF file, 1.5 MB) | |
| Executive Summary
Frequency and severity of natural disasters are increasing worldwide, in particular for hydro-meteorological extremes, posing a serious threat to the development of many countries and regions. Losses are increasing worldwide as a result of weather-related disasters, such as storms, floods, landslides and droughts. This increase is partly due to economic growth and the increasing world population that inhabits exposed areas, but it is also believed that changes in the climate are responsible for the increasing impacts and losses. In particular water resources are vulnerable to changes in climate, compounding changes in water use of a growing population that is demanding more and more water per capita as part of its development. The Intergovernmental Panel on Climate Change projects changes in rainfall amounts, intensity and frequency distribution in many areas. Although the exact magnitudes and changes on the regional and local level are unknown, climate change poses a real threat to water resources and through water related disasters. Indeed, the increase in the size of population in exposed areas and the economic development will have the biggest impact on water related risk, and thus climate change is just one of many pressures to which the hydrological system and water resources are exposed. However, climate change will pose an additional challenge to a system that is already under considerable stress, and some regions will be impacted negatively even under little to moderate warming of the world's climate. For sustainable development, access to freshwater and the protection against floods and droughts are crucial. Therefore, risk management and adaptation strategies will have to incorporate a broad and multi-facetted array of pro-active measures that all contribute to a less vulnerable society. Traditionally, risk management in the water sector has focused almost exclusively on structural measures and rarely on alternative means of spreading and transferring the risks. We highlight the opportunities that are being offered by insurance and other financial services, in preparing for disasters and helping to rehabilitate by providing financial buffer. They can both enable and complement other adaptation measures. Making creative use of insurance and financial services products is a pro-active means of planning for and dealing with the adverse impacts of climate change; before a disaster strikes, during a disaster and rehabilitation after a disaster. Increasing use of insurance and other financial services and new products should be coordinated and integrated with other adaptation measures. Governments, NGOs, scientists and the financial services sector can work together to improve the adaptive capacity, in particular in developing countries. Governments can encourage public-private partnership, involving the insurance and financial sector, and thereby spreading risk and partially relieving public budgets from disaster impacts. Through awareness raising and financial incentives, more pro-active disaster mitigation (i.e. risk minimization measures) can be encouraged. Governments can further provide a framework to increase resilience, e.g. in land-use planning and in the setting of building standards, aided by scientists and experts from the financial services sector. The financial services sector consists of a broad range of private and public institutions that offer insurance, financing, and asset management products. Insurance products, for instance, can help to recover more swiftly after a shock. Additionally, by setting standards for insurance policies, the sector can also aid damage mitigation and adaptation efforts. The private sector can assist in risk area mapping and by offering estimates of probable maximum losses (PMLs - see box 4). These activities can help in estimating resources needed in the event of a disaster, thereby assisting governments to assess their probable liabilities and preparing for disasters. Other products include microfinancing and microinsurance schemes for those groups usually excluded from financial services. Successful schemes frequently involve development banks, at least during the initial phase. From the perspective of development banks, increasing use of insurance for large infrastructural projects can reduce the amount of investments lost due to natural disasters. If knowledge on the potential risks from weather-related disasters is available, and the government has resources available due to a better planning, it is likely that business can step in and that a public-private cooperation for risk arrangements can work. Scientists can offer knowledge on the current climate, climate change, and regional weather forecasting, improving the chances to plan and provide for resources needed in the event of calamity. Vulnerability to water-related disasters is highest in developing countries, where adaptive capacity is limited - specifically, the ability to implement integrated water resources management and integrated risk management - compounded by low insurance penetration and absence of financial services. New private-public partnerships in risk management can help to strengthen resilience of these countries, when focusing on preparedness. This is also true for developed countries, which are increasingly impacted by water-related disasters as well. The flooding in Central Europe in August 2002 is a very good example. More efforts must and can be put into understanding risks, and attempts must be made to use and invest resources most efficiently, pro-actively addressing the risks of water-related extreme events. With efficient resource use in disaster preparedness and disaster response, sustainable development can be strengthened. This joint report by the Dialogue on Water and Climate and Munich Re addresses the increasing impacts of water-related disasters and its increasing losses and it discusses the role that insurance and other financial services can play in an integrated and pro-active risk management. The report is structured around the so-called disaster cycle, and describes current roles, responsibilities, tools and coping strategies of relevant sectors and stakeholders. It provides an integrated view of the disaster management continuum, encouraging new partnerships and funding mechanisms for developing and industrialized countries, in order to create safer and more sustainable societies. |
Risk management
in water and climate - the context:
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