Financial Protection for Middle Income Countries Strengthening the financial resilience of developing countries against the impact of natural disasters Why is financial protection important to reduce poverty and increase shared prosperity? Financial losses from natural The Disaster Risk Financing and disasters continue to rise. Developing Insurance Program leads the countries and their low-income dialogue on financial resilience as populations experience the greatest part of the World Bank Group’s effort impacts. to support more than 50 vulnerable countries in better managing disasters and climate shocks. Over the last 10 years, global Disasters have the worst effect losses due to natural disasters have relative to GDP on middle-income averaged $165 billion a year. countries, where rapid economic growth leads to an increase in assets exposed and affected. What we do The Disaster Risk Financing and Insurance Program (DRFIP) helps Middle Income Countries develop and implement comprehensive financial protection strategies that bring together different financial instruments to protect against disasters of different frequency and severity. By securing the funds for disaster response in advance and putting in place the budget systems to rapidly and effectively execute them, this approach helps governments become more effective risk managers. The program for Middle Income Countries is structured around five main activities: 2. Assessment of 3. Review of fiscal 1. Catastrophe risk economic and fiscal management of modeling strategy impact of disaster natural disasters 4. Review of catastrophe 5. Capacity transfer and risk insurance regulatory training on sovereign framework disaster risk financing strategy How we support governments Colombia Vietnam In 2013, Colombia became the first country to develop and begin A national catastrophe risk model was developed for Vietnam implementation of a dedicated national DRF strategy with support of to provide the Ministry of Finance with estimates of future losses the program for middle income countries. resulting from floods, earthquakes, and typhoons. Colombia now has catastrophe risk insurance standards in place Vietnam is seeking to integrate financial risk management of public protecting public infrastructure investments worth US$38 billion. assets, including potential insurance solutions, into a new draft law Future support. Colombia is working toward long-term and associated regulations. implementation of its strategy with a special focus on expanding work Future support. Vietnam will explore insurance solutions to protect to the subnational level and seeks to improve its combination of risk public assets, develop a national DRF strategy, and support select transfer and risk retention solutions. cities in strengthening their financial resilience. Morocco Peru In 2016, the World Bank approved a US$200 million Integrated Building on extensive analytical support provided to the government Disaster Risk Management and Resilience Program-for-Results for by the DRFIP, the Ministry of Finance launched a national DRF strategy Morocco, which includes a focus on financial resilience. in 2016. A new catastrophe risk insurance law passed in 2016 (i) requires Peru’s Insurance Supervisory Authority revised its regulation on that disaster insurance be included in property and automobile catastrophe reserves for insurance companies, a change that will insurance policies, and (ii) establishes a Solidarity Fund to provide help grow and strengthen the local insurance market. basic financial compensation to noninsured households. Future support. The focus will be on implementing the national DRF Future support. Implementation of the 2016 law and development of strategy, in particular by developing a catastrophe reinsurance pool analytical tools to guide risk-informed decision making will be supported. and extending DRF to subnational governments. FINANCIAL PROTE C TION FOR MIDDLE INCOME COUN TRI E S Key Lessons Learned from engagement with Middle Income Countries Since the launch of the program for Middle Income Countries in 2012, work with seven countries has generated key lessons for successful engagements in building financial Serbia resilience. The government of Serbia adopted a national DRF program in 2017 and is working 1. Government ownership. Active owner- toward establishing a dedicated fiscal risk unit in the Ministry of Finance. ship of the agenda by the government In 2017, Serbia entered into a contingent line of credit (Catastrophe Deferred was instrumental in fostering progress Drawdown Option, or Cat DDO) with the World Bank; this will provide US$70 toward goals. million in rapid bridge financing after a disaster until the government can 2. Identification of key stakeholders. mobilize more resources. Building relationships with several rel- Future support. The focus will be on helping the government establish and build evant ministries and departments made the capacity of the dedicated fiscal risk management unit, expand DRF to the it possible to continue engagements subnational level, and improve the efficiency of budget mechanisms in managing despite changes in government. disasters. 3. Identification of priorities and chal- lenges. An early discussion of priorities and challenges enabled a strategic ap- proach in the support provided. 4. Timely delivery of customized solu- tions. Meeting client needs in a timely and responsive manner was a key fac- tor in strengthening relationships. World Bank Group Disaster Risk Financing and Insurance Program is a joint program 5. Interaction with counterparts. Ex- of the World Bank’s Finance and Markets Global Practice and the Global Facility for changing with local stakeholders made Disaster Reduction and Recovery (GFDRR). As a leading provider of analytical & frequent engagement with the govern- advisory services on disaster risk finance, it helps governments, businesses, and ment possible. households manage the financial impacts of disaster and climate risk without 6. Balance between technical and policy compromising sustainable development, fiscal stability, and well-being. solutions. Giving equal weight to tech- Partnership with Switzerland’s State Secretariat for Economic Affairs nical and policy aspects of disaster risk This work is generously funded by Switzerland’s State Secretariat of Economic finance (DRF) helped to identify sus- Affairs (SECO) and supports selected middle-income countries to strengthen their tainable and implementable solutions. financial resilience and protect their fiscal balance against disaster and climate risks. Launched in 2011, this is one component of a broader World Bank Group–SECO partnership on fiscal risk management for middle-income countries. Olivier Mahul Benedikt Lukas Signer (omahul@worldbank.org) (bsigner@worldbank.org) www.worldbank.org/drfi