Sixth International Symposium on Catastrophe Risk Management

Risk Management of Mega Cities - Who is Responsible?

ICRM Symposium 201523 - 24 April 2015

Malcolm C SteingoldAon Benfield Asia Pacific

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Growing impact of events on GDP will drive cities and countries to be more resilient to disaster risk

Global Economic Losses as % of GDP

Need for resilience

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Some Recent Events and the challenges they have presented

Canterbury EarthquakesMultiple EventsHyper-LiquefactionClaims Handling

Sandy 2013Event DefinitionInland FloodingInfrastructure Damage

Tohoku 2011Parameter Risk (max mag)Ancillary Damage (Fukashima)

Thailand Flood 2010Contingent BIInundation DurationLevee CollapsePoor knowledge

Chile Earthquake 2010LiquefactionBuilding Code PerformanceNon Structural Damage

Katrina 2005Levee BreakInundation PeriodHuman Disruption

Indian Ocean Tsunami 2004TsunamiOcean wide lossAccessibility Impacts

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Japan Earthquake and Tsunami 11th March 2011

Magnitude 9.0Mw earthquake lasting 220 seconds

� Economic losses of USD 210 billion, insured loss USD 35 billion

� Economic impact estimated at 4% GDP, while industrial production and exports dropped by 7.0 to 8.0 percent

� Tsunami waves that reached heights of up to 40.5 metres and travelled up to 10 km inland –incapacitated Fukushima Daiichi Nuclear Power Plant

� More than 20,000 people left dead or missing, more than 220,000 people required temporary housing

� Size of earthquake and tsunami not considered by scientific community and risk modelling

A long history of earthquakes and tsunami Established Risk Transfer and Financing • Japan has invested extensively overtime to build up

preparedness and mitigation for earthquake and tsunami.

• One minute before the earthquake was felt in Tokyo, the Earthquake Early Warning system, which includes more than 1,000 seismometers in Japan, sent out warnings of impending strong shaking to millions. It is believed that the early warning by the Japan Meteorological Agency (JMA) saved many lives.

• Although Japan has invested the equivalent of billions of dollars on anti-tsunami seawalls which line at least 40% of its 34,751 km coastline and stand up to 12 m (39ft) high, the tsunami simply washed over the top of some seawalls, collapsing some in the process.

• Japan has a long running earthquake scheme residential earthquake insurance.

• Nature of the policies allowed rapid settlement of claims following such a big event (nature of 3 step policy structure private ins.). Conservative reinsurance arrangements ensured relevant transfer of the risk to international market.

• Satellite images were used to designate specific total loss zones and thus assist in rapid assessment.

• High deductibles and limited nature of polices leads to insufficient payout. Insurance penetration should behigher (currently 40%).

• Risk assessment through catastrophe modeling is continuously improving

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� Allocation is typically: 26.4% disaster recovery and rehabilitation, 48.7% national land conservation, 23.6% disaster prevention and preparedness, 1.3% scientific technology research

� Following 2011, the DRM budget share reached 5% of national budget

� Long term investment helped to prepare society and facilitate relevant mitigation measures on the ground

In-light of recent events where the science and awareness could be improved, more focus could be directed on research

Disaster Risk Management expenditure: Japan example

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Significant challenges remain despite significant investment overtime

• Mitigation measures were overwhelmed, including Fukushima Nuclear Reactor

• Failure of mitigation can lead to cascading impacts and may not be considered in Disaster Risk Management Framework

• infrastructure• original urban planning• disaster response plan• risk financing capacity• economic sustainability

seawall breached by tsunami

Continual learning from these observations and having the ability to adapt shouldbe part of resilient disaster risk management framework

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Christchurch Earthquake Series 2010/11

Series of earthquakes from 2010 to 2011 impacting Christchurch

� Combined economic losses circa USD 24 billion, insured loss USD 18 billion, reduction in GDP in 2011 by 1.5%

� Challenge of compounding event damage to recovery and assessment

� Extensive liquefaction yielding many regions of existing city inhabitable

� Economic challenges - significant disruption with CBD closed for two years

� Local ground shaking exceeded design codes of building structures

A long established Government body - The Earthquake Commission (EQC)

Established 1945, EQC core functions around disaster risk management:

� Knowledge development

� Pricing and financing the risk

� Claims management

EQC helped Establish:

� Research helps drive one of the most stringent building codes

� Earthquake fund accumulation

� Utilisation of existing insurance framework to deliver earthquake cover – 90% residential insurance take-up

� Education and action in the community around earthquake risk preparation and mitigation

Positive outcomes from earthquake experience

� A centralised government body that responds immediately to an event

� Immediate access to capital, centralised claims management

� Unified zoning of impacted areas

� Control over inflationary factors on rebuilding costs

� Established risk financing arrangements continue

Challenges

� Multiple-events complicate the handling of claims

� Complexity over coverage (building / land / ancillary)

� Complexity and confusion around communication between private insurance, EQC and policy holder

� Risk understanding and analysis needs improvement

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2011 Thailand Floods

Thailand floods in the Chao Phraya River Basin in late 2011

� Economic losses estimated at USD45 billion, insured losses at USD 15.5 billion

� 65 of Thailand’s 77 provinces impacted by flood waters

� JIA ~70% of the insured losses (estimated) – mostly from 7 flooded industrial estates

� Business Interruption: Disruption to the supply chain extends overseas, due to a lack of inputs from suppliers located in Thailand

� Most costly insured flood loss borne by commercial insurance market worldwide

Observations and Lessons from the 2011 Thai floods – lack of resilience planning• Rapid economic development saw utilization of land use in

obvious flood plain areas – insufficient mitigation measures

• Lack of awareness on the risk heightened the impact locally, nationally and internationally.

• Shock to the insurance/reinsurance industry resulted in changes to risk financing – limitations of cover

• Vulnerability of the global supply chains – knock on impact

• Threat to economy – lack of attraction for existing and future FDI opportunities, move offshore.

• The floods were worsened by mismanagement and indecision

• Natural Disaster Fund was set up backed by Government to support the provision of natural disaster risk coverage to households, small firms and industries.

• Comprehensive redesign of Water Management System

• Master Plan for integrated management and development of 25 River Basins

• Allocated budget USD 1.7 billion for physical flood control works

• Permanent dykes around impacted Industrial Estates

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Subsidence: an example of decisive action in risk management

In Tokyo, after taking regulatory measures on restriction of groundwater use in the early sixties, the groundwater levels increased again and after around 10 years the subsidence was stopped

The issue was dealt with locally through strong government mandate and regulation – outcome is clear

Adapted from: Sinking cities, An integrated approach towards solutions (www.deltares.nl)

Subsidence in sinking Cities

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Subsidence remains a significant challenge to existing mega-cities

Subsidence in Jakarta

� Continued subsidence in Jakarta leading to drainage challenges

� Continued development of seawalls to combat the problem

� Inundation from the sea presents a significant challenge

Long term Resilience may now require massive, international, multi-agency investment.

Great Garuda Project

� The 35-kilometre wall, across the Bay of Jakarta off the city’s northern coast, is the centerpiece of a project that will cost up to US$40 billion over 30 years.

� Long term – what guaranteed outcome?

� But may also present an economic opportunity.

http://www.kuiper.nl/en/news/the-great-garuda-to-save-jakarta/

Source: Deltares

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Cyclone Phailin: effective disaster planning, but needs to extend beyond saving lives

� In 1999 Odisha cyclone (05B) caused up to 10,000 deaths in Orissa.

� A repeat of similar event, Cyclone Phailin in October 2013 only 21 lives were lost as a direct result of the cyclone

� So what key changes had taken place:– Odisha established the first state agency in India to directly

address disaster management– Government cooperation and preparedness between local and

national levels– New early warning system which started five days before the

storm's arrival and facilitated:• movement of people, livestock and dam for flood mitigation

– Establishment of shelters (accommodating livestock and people) through funding from Worldbank

– Orderly, and sometimes forceful, evacuation of close to one million people

� However, economic Impact remains high, USD1.5b, compared to USD5b for Odisha (Worldbank)

� Cylone Hud Hud in 2014 mirrored the low loss in life, although there was still a significant economic impact (USD11b, Impact Forecasting)

1999 - 10,000 lives

2013 - 21 lives

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The role of Reinsurance: Cat Events 2010/11

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� Global experience in government Disaster Risk Financing initiatives and relationships with government, regulators and rating agencies

� Catastrophe Risk insight and understanding impact of data and modelling limitations

� Model development to enhance understanding of risk and facilitate product and market development

� Partnership with private insurers for distribution and claims management� Structuring and placement of appropriate risk transfer solutions� Access to global reinsurance capital� Access to global technology, knowledge and resources

Role of Reinsurance and Advisors

Role of Reinsurance and Capital Advisors

Risk Expertise Financial Risk Transfer Global Reach

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Role of International Agencies in Disaster Risk Management

International Agencies cover a broad spectrum around Disaster Risk Management

� Open Research into the understanding of vulnerable communities to Disaster Risk

� Disaster Risk Financing in Developing Nations

� Disaster Aid, Response and Recovery

� Capital Programs for Disaster Risk Mitigation

� Education and Communication

A key role for developing Asia is around Disaster Risk Financing, financial protection will help governments mobilize resources in the immediate aftermath of a disaster and reduce the long-term financial impact. The likes of the World Bank (national focus) and Asia Development Bank (city/regional focus) are key players.

The Disaster Risk Financing and Insurance (DRFI) Program

� Partnership between World Bank and Global Facility for Disaster Reduction and Recovery (GFDRR)

� Focus to improve the financial resilience of government, businesses, and households against natural disasters

� Often it supports governments in working with the private sector to facilitate public-private partnerships

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DRFI Program in recent action: Vietnam

� National disaster risk financing and insurance strategy focus on Vietnam

� Recent tender to develop catastrophe risk models for floods, typhoons and earthquakes with a focus on Hanoi, HCMC and Da Nang

� Forms the scientific foundation for improving risk-informed financial decision making:– Ministry of Finance – assessment of economic and

fiscal impacts of disasters; managing budget volatility and contingent liability

– Insurance Supervisory Authority – regulating and supervising cat risk insurance business

– Insurance companies – designing, pricing and managing cat risk insurance products

� To help facilitate the implementation of catastrophe risk financing strategies including national Cat pool

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PML and Beyond: learning from the past - considerations for resilience

422,000New Yorkers

estimated with PTSD due to 9/11

x2 growth in claims staff after

Canterbury Quakes

x

600million

Hiroshima Bombs = Tohoku

Quake Energyn

7.1% drop in Dow

Jones index on 12th September

2001

49million

Barrels of oil spilt during

DeepwaterHorizon

2 x UK area under 1cm

of ash after Tambora 1815

Eruption101Tsunami

evacuation sites inundated during

Tohoku event

>30%Population

killed by Black Death in 1300’s

65 of 77 Thai provinces inundated in

2011

s g 67%

drop in Carnival Corp profit 1 year after Costa Concordia

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� [Corporate] “resilience is the ability to prepare and plan for, absorb, recover from, and more successfully adapt to adverse events.” Disaster Resilience, National Academies

What is Corporate Resilience : 4 Simple Questions

Will I be able to meet my financial obligations?

Will my customers insure with me again?

Will my competitors customers insure with me?

How do I demonstrate the answer is Yes?

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Translate these to Resilience from a Government perspective

Will I be able to feed, shelter and protect my citizens?

Will I have the capital to repair and rebuild?

Will I achieve economic growth and international investment?

How do I demonstrate the answer is Yes?6th

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Some clear characteristics which translate into resilience

� Resilience’s most crucial factor is Leadership

� Clarity of purpose/goal is one of the key requirements from the Leader(ship)

� Knowledge, preparation and an understanding of vulnerabilities. The more informed and practiced a group, the better they will perform

� The decision-making process during a crisis – who and when

� Being agile, having the ability to adapt and embrace change is a consistent theme, part of the definition of resilience

All of these would be considered as key attributes as part of a resilient City Framework

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Critical Next Steps Towards Disaster Resilience: who is responsible

� Policy Change: Governments review and, where appropriate, revise disaster risk management legislative and regulatory frameworks

� Risk Assessment: Governments ensure that a disaster risk assessment is undertaken for all new local investments

� Financing: – National and subnational governments can develop and implement comprehensive disaster risk financing

strategies to reduce risk and to provide adequate and timely post-disaster support to strengthen financial resilience– Governments, in cooperation with the international community, can encourage the growth and development of the

insurance and reinsurance sectors in their countries– Governments, in cooperation with the international community, can establish public programs of financial support

for community and local investment in risk assessment, risk reduction, and residual risk management.

� Private Sector Engagement:– Governments, working in cooperation with the international community, develop programs of work to strengthen

private sector understanding and appreciation of the commercial opportunities in strengthening resilience.

� Knowledge Management– Governments and regional associations, working in cooperation with the international community and private sector

partners, can establish an open-source, regional, online information platform to facilitate the development, exchange, and dissemination of hazard and risk data, including climate change modeling

– Governments and regional associations, working in cooperation with the international community, can establish a regional knowledge-development and capacity-building program to strengthen understanding cross government and the wider society of the potential returns on investments in risk assessment, risk reduction, and residual risk management.

Investing in Resilience: Ensuring a Disaster-Resistant Future, Asia Development Bank

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