The Role of Scientifi c Modelling and Insurance in Providing Innovative Solutions for Managing the Risk of Natural Disasters - Reducing Disaster: Early Warning Systems for Climate Change - page 323

17.5.1 The Political Aspect of Disasters

Unfortunately there tends to be greater emphasis placed on disaster response and
relief rather than ex ante interventions such as improved building codes and early
warning systems. The reason for this short-sightedness is well-documented and
includes a misperception of the chances of a disaster happening, and a motivation
for politicians to be associated with disaster relief, instead of costly disaster preven-
tion and preparedness.
Successful disaster risk management is driven by strong legislation, an indepen-
dent national institution to focus on risk reduction with guaranteed funds, an
increase in local scientifi c knowledge and coordination across national and local
scales. It is also often the case that a prominent minister takes a special interest in
disaster risk and follows through with successful implementation. Furthermore, the
stimulus to creating disaster risk management systems is often provided by a natural
disaster.

17.5.2 Catastrophe Risk Financing

Catastrophe risk fi nancing is a relatively new area of research (Elsner et al. 2009 ).
Governments carry a number of public sector liabilities associated with critical
infrastructure and services, which can be insured using appropriate catastrophe
programmes.
In the event of a disaster, funds are urgently required to support fi nancial liquid-
ity, replace damaged infrastructure and provide emergency services and relief.
Sovereign catastrophe risk fi nancing programmes aim to ensure that the government
continues to function by providing liquidity and budget support immediately after a
catastrophe. Examples include the Caribbean Catastrophe Risk Insurance Facility
(CCRIF) created to facilitate the regional pooling of hurricane and earthquake risks,
the Earthquake Commission (EQC) in New Zealand and an innovative catastrophe
bond developed in Mexico (Box 17.3).
Catastrophe programmes are particularly relevant for transferring risk in devel-
oping countries as the international community often plays the role of reinsurer of
last resort. The need for adequate disaster risk fi nancing in developing countries
has received growing attention due to the major economic risks arising from cli-
mate change (Gurenko 2006 ). Many of these risk fi nancing programmes are sup-
ported by donors and international fi nancial institutions (Gurenko 2004 ). Substantial
challenges still exist to achieving competitive catastrophe risk markets in develop-
ing countries, requiring assistance from the insurance industry (Cummins and
Mahul 2009 ).