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March 22, 2015

Responding To: Week 9: Climate Change

Public-Private Innovation to Build Resilience in Vulnerable Communities

Claire Cullen

Last week, Tropical Cyclone Pam, one of the strongest storms ever to hit land, wrought devastation on Vanuatu and caused damage in the neighboring countries of Tuvalu, Kiribati and Solomon Islands. The economic vulnerability of these small, remote Pacific Island countries has been analyzed in detail, but disasters like the recent cyclone underscore their extreme environmental vulnerability. While the challenges they face may be more intractable, the Pacific Islands are not alone in experiencing the double burden of environmental and economic vulnerability.

Experts tell us we can expect more extreme weather events including more frequent and intense droughts, floods and storms, rising sea levels, and increases in water-borne and vector-borne diseases. Although disasters cause greater economic losses in developed countries, poor countries are more adversely affected as a share of national income; vulnerable countries like Vanuatu can face annual losses of over 6 percent of GDP. Disasters disproportionately affect those living in poor countries where an estimated 93 percent of disaster-related deaths occur. For economically and environmentally vulnerable countries, the predicted increase in natural disasters could be crippling. These countries need creative solutions to address the challenges ahead.

Dr. Kim stressed last week that over the past twenty years, only 2 percent of aid has been spent on disaster-related programs, and only 3.6 percent of those funds went towards prevention and preparedness. Setting the right incentives for private investment to reduce disaster risk will go a long way towards achieving more resilient economies.

One solution gaining currency involves the transfer of disaster risk to insurance and capital markets. Such insurance enables countries to rapidly respond to disasters, and reduces the economic burden of disasters by transferring losses to insurance markets. The World Bank and its partners recently began a pilot for catastrophic disaster insurance with five Pacific Island countries, including Vanuatu. The World Bank is helping develop the insurance policies and acting as intermediary between governments and reinsurance companies. In addition to providing short-term funds in the event of a disaster, this alignment of private incentives with public interest should boost longer-term demand for investment in disaster risk reduction. This is just one example among many of disaster risk related innovations generated by public-private partnerships; other examples include new approaches to risk assessment, risk sharing, and insurance delivery channels. [1]

Dr Kim balances optimism with a pressing call to action on climate change. A key message was that no matter how slowly policy change occurs at the international level, innovation to reduce disaster risk is already underway on the ground. What is needed is a strengthened public-private dialogue, with a view to mitigating the unfair burden borne by the poor living in vulnerable countries.

Claire Cullen is completing her Masters in International Development Policy at Georgetown University. Cullen previously worked for the Australian Agency for International Development, where she focused on Australia’s aid program to the Pacific Islands on issues including economic reform, public financial management, governance, sovereign wealth funds, gender equality, and migration policy.

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