1. Disaster losses and Economic Consequences:
Toward Comprehensive Risk Finance Strategy
The First Arab Regional Conference
for Disaster Risk Reduction; Aqaba, Jordan
20, March, 2013
Recently the UNISDR reported that for the first time in history the world has experienced three consecutive years where annual economic losses have exceeded USD 100 billion due to an enormous increase in exposure of industrial assets and private property to extreme disasters. Under continuing economic loss due to disasters, we must increase our efforts to manage economic loss by establishing comprehensive risk finance strategy.
Kazuko Ishigaki, Risk Knowledge Economist United Nations Office for Disaster Risk Reduction Geneva, Switzerland

2. Contents Need for Comprehensive Risk Finance Strategy
Risk Management Tools for Private Sector and Government
To Prepare for Probable Maximum Disaster
Process of evidence-based decision making
Conclusion
Today I begin with why we need comprehensive risk finance strategy. Then I summarize risk management tools for private sector and government. Third, I will explain why we need to prepare for probable maximum disaster. And lastly I explain the process of evidence-based decision making. 2

3. The Need for Comprehensive Risk Financing Strategy
Background 1 Increase/intensification of disaster  interruption or slow down to economic growth e.g. Pakistan GDP growth estimate
So, I would like to begin with briefly summarizing why we need comprehensive risk financing strategy.
First, as you already know, disaster interrupts or slows down economic growth by damaging public and private infrastructure and built environment, affecting negatively the economic activities, and most of all, killing and injuring people. For example, please look at this graph showing Pakistan GDP growth estimate calculated by JICA. The blue and red lines estimate the GDP with impact of disaster while the black line shows GDP without impact of disaster. As you see, disaster will impact negatively on GDP in Pakistan, though DRR investment mitigates the negative impact to a certain degree. The past trend of four selected countries also assures the relationship between disaster and its negative economic impact. The blue lines, which estimates GDP by removing the impact of tropical cyclone are all above the observed GDP. The difference is bigger in Philippines and Madagascar than in the US and India. The reasons are not identified in this study but the main reasons would be possibly the difference of hazard scale or ex-ante DRR investment level.
e.g. Simulation of economic growth and cyclone exposure 3

4. The Need for Comprehensive Risk Financing Strategy
Background
2. Economic growth  increase of economic loss in the event of disaster
e.g. Annual Average Losses from cyclonic wind by risk class
Second, developing countries are very vulnerable to disaster due to factors such as poorly built housings and underinvestment in DRR infrastructures, underlying of which lies economic stagnation and poverty of those countries. Economic growth increasingly tends to get rid of this kind of vulnerability. However, the increased value of assets exposed to disaster add another layer of risk. This is somewhat reflected in the figure of AAL from cyclonic wind, which is the greatest in Japan and the USA. In each stage of economic development, we need to think about what contributes to increase of risk. 4

5. The Need for Comprehensive Risk Financing Strategy
Background
3. Constrained public finance
Third, to mitigate the impact of disaster, the governments need to finance and fund the mitigation programmes such as levee construction or building retrofitting. However, governments all over the world are suffering from tight budget constraint. The financial situation of low income countries are especially tight as seen in the yellow line, because they have already outstanding amount of debt and fiscal primary balance which takes interest payment into consideration has been negative during the decade.
Source: IMF (2012) 5

6. The Need for Comprehensive Risk Financing Strategy
Background
4. Constrained public investment
- Investment vs consumption
5. Increasing importance of private investment
- Public/Private investment share
OECD 16%: 84%
Developing countries 30-40% : 60-70%
Forth, if we look at the details of public finance, we can see the additional factor of budget constraint. In the government expenditure, public investment has been under pressure due to increasing financial need for social policy such as health care. As you see from the graph, governments pay for consumption more than for investment in general. Though the consumption is rather stable, investment, especially in lower middle income countries are volatile. DRR infrastructures are usually costly investment and tend to be underinvested in development planning.
However, the fifth factor I would like to address is if you look at wider picture of investment including private sector, you will come up with the different idea. In many countries, private investment far exceeds the public investment. Therefore, the mitigating the impact of disaster on private investment would enormously reduce the total economic loss. So, risk financing strategy of government should take into consideration how to mitigate the impact on private sector to reduce total economic loss of the country and consequently fiscal burden on the government. 6

7. The Need for Comprehensive Risk Financing Strategy
Challenges and Options
A: To decrease economic loss in the event of disaster
Invest in disaster risk reduction and preparedness
B: To finance the response/recovery/reconstruction after disaster
Transfer risk and/or pool money
Both require ex-ante financing under tight budget constraint
 Need for Comprehensive Risk Financing Strategy
Disaster brings to the government two financial challenges. The first is to decrease total economic loss in the event of disaster. If the loss is limited, the financial need for response and reconstruction will be decreased. The second is how to finance the response/recovery/reconstruction after disaster. Both are not mutually exclusive. All countries need to consider both challenges, which need financial solution in addition to institutional solutions. For the first challenge of decreasing total economic loss, government needs to invest in DRR and preparedness. For the latter challenge of financing response and reconstruction, government needs to pool money, transfer risk or both.
The point is both solutions require ex-ante financing under tight budget constraint. The solutions must be efficient and effective in every senses. That is the reason why we need to prepare comprehensive risk financing strategy in advance to disaster.
Then, the important questions that come up with the MOF officials would be," how much money should be allocated to comprehensive risk financing?” and “what is the most efficient and effective allocation of money between A and B, that is, risk reduction and both risk transfer and risk retention?”. These are difficult questions and before thinking about how to answer, I would like to briefly summarize policy tools for risk management, which will contribute to prepare comprehensive risk financing strategy.
Q1 How much money should be allocated to comprehensive risk financing?
(size of total pie)
Q2 What is the most efficient and effective allocation of money
between option A (risk reduction) and B (risk transfer and risk retention)?
(how to divide the pie) 7

8. Risk Management Tools for Business and Household
Risk reduction
Risk finance
Risk avoidance
Risk mitigation
Risk transfer
Risk retaining
Business
No business in hazard prone area
Diversifying business location
Improving resiliency of offices etc
Crafting BCP
Buying insurance
Issuing cat bonds
Setting allowance for contingency
Establishing captive companies
Household
No housing in hazard prone area
Improving resiliency of housings
Dedicated savings in the event of disaster
Many textbooks generally classifies the risk management techniques into risk reduction and risk finance. Risk reduction is further sub-categorized into risk avoidance and risk mitigation. Risk finance is also sub-categorized into risk transfer and risk retaining. Before discussing about government policies, using this framework, I would like to summarize the major risk management tools for business and household. As I told, the private investment occupies outstanding share of total investment. It is necessary to address what private sector can do to decrease the total loss.
Risk avoidance is mainly attained by eliminating exposure to risk. If there is no offices, no factories and no housings in hazard prone area, the people can completely avoid disaster loss. Risk mitigation can be achieved by reducing exposure and vulnerability. For example, business can limit exposure of assets by diversifying business locations. Business and household can improve resiliency by retrofitting the building and housing. BCP of the business also contributes to limit cascading effects of disaster such as prolonged business interruption, so it can be a kind of risk mitigation measure. These tools all contribute to the DRR.
Then, how to finance risk in case of disaster? Private sector, both business and household, can buy insurance and transfer part of risk to insurance company. Business also has an option to issue cat bonds though it is limited to big companies with sufficient financial and technical capability. For the risk which cannot be transferred, private sector prepares by saving for contingency. Companies, mainly big ones, can also establish captive companies, which is a kind of self-insurance in a group of companies.
Risk management of insurance companies especially attracts attention because their business is indeed risk management and their strategies are very insightful. First, to avoid risk, the companies select risk which they can take. Usually they try to take low risk items (often called peaches) and avoid high risk items (called lemons). If the risk levels of the insured decrease, that would be beneficial to the company. So they have strong incentive to mitigate the risk. They often carefully design insurance contract so that it would provide the buyers with DRR incentives. For example, if the premium is set according to the risk level, it would facilitate the DRR because the buyers would hope to pay lower insurance premium. For risk transfer, insurance companies can either buy reinsurance or issue cat bonds depending on the cost and other financial considerations. For the risk which cannot be transferred, to limit the risk retained, companies set deductible and liability limits. Then insurance companies only retain risks over deductible and below liability limit.
Insurance companies
Selecting risks which can be insured
Providing buyers with DRR incentive (e.g. premium setting linked to risk level)
Buying reinsurance
Issuing cat bonds
Setting deductible and liability limit 8

9. Government Policy for Comprehensive Risk Finance
(1) To affect private corporations and households
Precondition
Risk assessment
Hazard mapping
Information sharing and education
Individual methods
Risk reduction
Risk finance
Risk avoidance
Risk mitigation
Risk transfer
Risk retaining
Land use planning
Helping relocation
Establishing early warning system
Helping evacuation planning
Infrastructure investment in DRR
Critical infrastructure protection
Establishing building code
Helping BCP
Providing incentive for insurance
Providing incentive for Issuing bonds
Providing incentive for reserve establishment
Unlike insurance companies which manage risks as business, usually private sector, both business and households, do not have strong incentive to manage risks. Even if they are aware of the need for risk management, financial constraints often impede the implementation. Then what can government do to facilitate private sector to manage the risk in order to decrease total economic loss?
At first, I would like to emphasize that government needs information and knowledge base to identify what the problem is and design policy. Risk assessment is a fundamental knowledge base in disaster management policy making. The risk information should be shared across public via information dissemination and education to increase reception and effectiveness of government policies. Hazard mapping, which many countries are developing, are useful tool for sound policy making for the government and information sharing among the public.
With knowledge base established, to facilitate risk avoidance of private sector, what can government do? The first and most important tool is land use planning. Limiting housing and office locations in hazard prone areas is a powerful way to eliminate exposure to disaster. Such regulation is generally cost-free on the balance sheet. However, the strong property rights in market economy often prevent government from taking this option. Even when land use planning and regulation is well established, it is often difficult to enforce it. Furthermore, in some countries regulation accompanies the financial cost. In Switzerland, for example, the municipality is required to pay landowners for lost opportunities caused by the increased land-use regulation. Sometimes, quite often after the disaster, government helps relocation of private business and households from the disaster prone areas to safer areas. In this case, government supports relocation by providing subsidy, property information, or tax allowance, in combination with land use planning which limits the development of disaster prone areas. Relocation is effective but costly for government and private sector. For those who cannot relocate, early warning system and evaluation planning is necessary to move people and assets temporarily from disaster prone areas when the disaster can be forecasted.
A for the risk mitigation, infrastructure investment in DRR is the most important government measures. For example, improved water management system including dam and levee drastically decreases exposure of people and assets in hazard prone areas. Not only new investment in DRR but also critical infrastructure protection is also raising political agenda especially since This started as a response to terrorism but now applied to disasters in general. Considering the importance of critical infrastructure such as power plant in economic growth, this would mitigate the impact on economic loss to a great degree. However, those investments in infrastructure development, maintenance and upgrading are quite costly in many cases. On the other hand, there is a regulatory tool which does not take financial cost in itself. Disaster proof building code would improve the resiliency of the buildings. However, the monitoring and enforcement is a challenge in many countries. Retrofitting when the building does not comply with building code is very often costly and some governments provide subsidy for it. Government can also facilitate BCP in private business by providing subsidy and advising technical know how.
For risk transfer, government can provide incentive for insurance, for example, tax allowance for insurance buyers or direct subsidy for insurance company. Also by reinsuring the insurance, government can contribute to cheaper risk premium. The same thing can be said to providing incentive for issuing bonds. I do not know whether a scheme to support saving for contingent disaster exists in the world. But it is theoretically possible to provide tax allowance to facilitate contingency saving. Compulsory saving scheme exists in Samoa where employees and employers are legally enforced to save 10% of gross salary and they are able to loan up to 45% of their contribution. These are the government policies to affect private corporations and households. These policies are usually under the responsibility of sectoral ministries and disaster management agencies.
Responsibility
Sectoral ministries/DM agency
Sectoral ministries/ DM agency 9

10. Government Policy for Comprehensive Risk Finance
(2) To assure business continuity of government
Precondition
Risk assessment
Hazard mapping
Information sharing and education
Individual methods
Risk reduction
Risk finance
Risk avoidance
Risk mitigation
Risk transfer
Risk retaining
No government offices, important public asset and facility in hazard prone area
Critical Infrastructure protection
Response plan
Government BCP
Buying insurance
Issuing bonds
Establishing reserve
Contingency credit contract
Then, what can government do to assure its own business continuity? Precondition is again sound risk assessment and information sharing, because this is the base for any sound evidence-based policy making. Risk avoidance policy also concerns eliminating exposure to disaster, in this case dislocation of critical public facility and assets from hazard prone areas. For risk mitigation, critical infrastructure protection is a key to continue providing public services. Not only response plan coordinating response activities but also government BCP for continuing important public service provision can mitigate the impact of disaster on government and economy in general. For risk transfer, government can buy insurance or issue bonds as private sector does. If risk transfer not possible or economically not preferable, then government can establish reserve, make contingency credit contract or both.
Risk reduction tools are generally under the jurisdiction of sectoral ministries or disaster management agency but risk finance is often under the responsibility of Ministry of Finance, due to the need to finance urgent and quite often outstanding demand for recovery and reconstruction while financially ensuring public service provision.
As you can easily expect, risk reduction of public assets would directly decrease fiscal burden on government. Furthermore, if the policies to affect private sector work well, then that will also decrease the economic loss and thus the need for fiscal support. So risk reduction affects the scale of risk finance. In that sense, we use the word “comprehensive risk finance” in order to refer to the combination of risk reduction and risk finance described in the table. We must notice to avoid confusion that the WB often address risk finance in narrow sense without consideration of DRR. If we use the table, both left side of risk reduction and right side of risk finance are comprehensive risk finance while the WB’s risk finance refers only right side of the table.
So, these are the main tools of risk management. As you notice, the variety is limited but how to combine these tools are unlimited. The detail design of each tool also has a variety of option. Recognizing the full picture of disaster management policies and identifying the alternatives facilitates sound decision making because we recognize the need to choose better policies to achieve certain objective. Economic thinking, especially CBA has been utilized in this regard.
Responsibility
Sectoral ministries/DM agency
Ministry of Finance/DM agency 10

11. To prepare for probable maximum disaster
PML $
(loss)
PML
Uncertainty: We do not know when the disaster occurs…
Intensive Risk
AAL
Extensive Risk
Year
Here let’s think again about why risk finance is necessary in spite of good tools of risk avoidance and mitigation.
Annual average loss calculated for all possible hazards in kinds and levels and under the defined return period suggests the needed level of risk mitigation. For example, if the AAL is USD 200 million, DRR activities worth reducing USD 200 million loss would compensate for disaster impact. The blue shaded rectangles are annual DRR investment and activities which are worth reducing AAL. If the investment in DRR accumulated well every year, then theoretically the most of intensive disaster loss can be covered by it. The blue line shows the case. However, if the intensive disaster happens in earlier period of the assumed return period, like in red case, the accumulated DRR activities until the event cannot cover the intensive loss.
Therefore, along with adequate annual investment for DRR to cover AAL, it is necessary to financially prepare for probable maximum disaster. That is a reason why PML is often cited when measuring financial resiliency.
Along With adequate annual investment for DRR to cover AAL,
it is necessary to
financially prepare for probable maximum disaster 11

12. To prepare for probable maximum disaster
Which sector covers which layer of risk?
Frequency
First loss
Excess loss
USA (FHCF)
Japan
Private
Government
Extensive Risk
Layer A
Intensive Risk
Layer B
Layer C
Economic loss
The existence of extensive and intensive disasters needs the financial strategy to be more carefully designed with analytical consideration. I researched insurance scheme of selected countries. Common characteristics are that the first layer of risk with high frequency and low economic loss is often covered by the government (or the public), and beyond a certain point, the risk is transferred to private insurance companies. Then beyond a point which shows low frequency but high economic loss, the loss is again covered by the government due to unaffordable scale of risk for the private sector. Thai flood of 2011 exactly tells the structure that after the flood, private insurance companies exited from the market by recognizing intensive risks and government of Thailand was required to establish reinsurance fund.
From this observation, we can again tell that considering how to financially prepare for probable maximum loss is necessary for the government. However, compared to AAL, to decide exactly how much money should be spared for PML has more difficult technical and analytical challenges to be tackled. So next, I will briefly introduce the process for decision making to compensate for AAL.
First loss
Excess loss
NZ (EQC)
Turkey (TCIP)
USA (NFIP)
Government
(the public)
Private 12

13. Process of evidence-based decision making
Risk
STEP1 : Produce risk (annual average loss & probable maximum loss) estimate.
STEP2: Choose the return period to cover : political decision
STEP3: Define the expected level of DRR: political decision
STEP4: Measure the impact of policy tools on DRR (avoided economic loss)
Policy
Reduced Disaster Risk
How much impact on reducing loss?
Here, please remember the first two important questions.
How much money should be allocated to comprehensive risk financing? And 2) What is the most efficient and effective allocation of money among risk reduction, risk transfer and risk retention?
These are difficult questions which needs a multiple steps of analytical considerations. The steps begin with risk identification. You need to have AAL and PML estimates as a basis. Second step is to choose the return period to cover. Does your country prepare for disaster which is assumed to occur within 50 years, within 100 years, within 500 years? The scale of disaster, that is AAL and PML, is bigger when considering long return period and mitigation cost differs a lot depending on the choice. The answer would affect the next generations and beyond, and thus require political decision. However, the government would be required to support the sound political discussion by providing a few scenarios.
Under the chosen return periods, AAL and PML, how much of risk will the government try to reduce annually? Full reduction? 80% mitigation? 50 % mitigation? This would be also a political decision to take. But again government would be required to prepare a few scenarios for reference. If the full risk reduction is not taken, retaining and transfer policy must be crafted in combination with DRR policy.
Here, we assume that AAL is annual risk to be dealt with. The risk must be reduced, transferred or retained. However the risk, that means estimated economic loss, especially the loss to be reduced is not equal to the needed amount of investment. First, there is an policy effectiveness issue. For example, public investment of 200 million USD might have an impact of reducing economic loss worth 300 million USD. This is the case cost benefit ratio is more than 1 in economic thinking. On the other hand there might be a case that public investment of 200 million USD might have an impact of reducing economic loss of only 100 million USD. Second, not only investment but also other measures such as regulation or tax allowance will have impact on reducing disaster risk.
So we need to establish the link between AAL and PML information on the one hand and policy related information on the other hand to facilitate the use of the risk information for better policy making. In my view, in the past decade, risk assessment has been globally progressed to certain degree. But the bridge b/w risk information and policy implementation was weak, possibly due to the lack of analytical methodology.
The forth step, which I think the key to the bridging, would be to measure the impact of individual policy tools on DRR. But the relationship between policy and its impact would be different depending on the location due the difference of factors such as topography, population and housing distribution, income level of residents and risk management cultures, to name a few. One-size-fits-all approach does not work. Each country needs to identify the impact of policy on reducing risk.
Public Investment
Subsidy
Tax
Regulation 13

14. STEP4 : how to measure the impact of policy on DRR?
Cost Benefit Analysis
Disaster Impact Analysis
Preconditions
Past disaster loss data
Vulnerability data
Construction standard
Principle
If the present value of benefit is equal to or more than 1, invest.
The higher C/B ratio, the more preferable the project is.
Before the project implementation, analyze and measure the disaster impact of the project and/or project impact on disaster.
If the negative impact is measured, include the mitigation cost in the total project cost.
Methodological problems (examples)
How to assign monetary value to saved life?
How to assign monetary value to avoided loss?
Same as CBA
Institutional
Problems
(examples)
Who does the analysis?
Administrative burden
Same as the CBA
Enforcement
When measuring the impact of policy, economists often use CBA. As most of you know, CBA is based on the simple principle: If the present value of benefit is equal to or more than 1, then invest. The higher C/B ratio, the more preferable the project is. However, there are complex methodological problems to be solved. In addition to problem common to all CBA, such as how to estimate discount rate, there are additional problems for DRR investment. For example, how to assign monetary value to saved life and avoided economic loss? Plus, there is a concern regarding who does CBA, a matter of objectiveness. Furthermore, CBA put outstanding administrative burden on government. Many governments requires CBA for only large scale infrastructure projects possibly to avoid the administrative burden and consequent delay of project implementation.
Disaster impact analysis is also a tool to measure the impact of policy. Often, the procedures are simplified by using a form of checklist. It is similar to EIA process which many countries already adopted, so it would be rather easily being introduced. The good thing is mitigation costs can be included in the project after DIS and before implementation of the project. However it has the same methodological and institutional problems as CBA. Ensuring compliance to the DIA recommendation is also a challenge.
Important thing here is the both analysis need past disaster loss data and vulnerability data to measure the impact of the project. Knowledge on construction standard is also needed regarding infrastructure and construction projects. 14

15. Process of evidence-based decision making
Policy
STEP5: Check the gap between the expected level of DRR
and current level of DRR
STEP6: Decide how to do with the gap: implement more DRR or transfer risk?
:political decision
Ideal
AAL
Reality
Investment
Regulation etc
Transfer
Retain
DRR
Investment
???
Regulation etc
Transfer
Retain
If we have estimate regarding the loss to be reduced, and also know the impact of policy tools on reducing risk, then we need to check the gap between the expected level of DRR and current level of DRR. So, step 5 starts with measuring the current level of DRR, i.e., the economic loss avoided by existing investment. Same thing should be done for existing regulation and other measures via regulatory impact analysis etc.
If the current DRR level is identified, decide how to do with the gap. Invest more for DRR, strengthen land use control or transfer risk? This would be again political decision. But government can support the discussion by providing a few alternative scenarios. For example, when Japanese Government has disclosed the risk assessment of expected mega disaster in south west Japan, they also released to the public the information that if building retrofitting rate is raised from current 80% to 90%, then total destruction of buildings would decrease by 40%. This estimate could be done because Japan had data on building destruction rate of past disasters and buildings structures. The impact analysis of a policy tool would generally facilitate DRR investment. 15

16. STEP5 (related): Main Challenges in DRR Investment Tracking: Lessons from the recent studies
(Main methodological challenges)
How to count “embedded” DRR investment? (e.g. water management)
How to separate DRR from reconstruction investment? (e.g. subsidy for housing relocation after disaster)
How to measure private sector investment, for example, PPP?
How to measure local government investment? (for example, many project are co-financed by national and local governments)
How to make the tracking comparable across countries and along time? (e.g. common or comparable definition of DRR, counting method)
It requires additional administrative burden on government
Here I would like to introduce the result of our recent studies on DRR investment tracking for selected Asian and Latin American countries. Though this aims to measure the amount of investment instead of the avoided economic loss, this provide useful insights for us.
In the study we faced many methodological challenges. The main problems are;
How to count embedded DRR investment? For example, water management can be DRR but has often different purposes such as productivity increase of agriculture or improved water quality. This brings ambiguity if explanation of budget item is not clear.
How to separate DRR from reconstruction investment? For example, if the government provides subsidy to relocate housing from hazard prone coast side to safer hill side, this can be reconstruction and DRR at the same time. If the budget item is not disaggregated to make it separable, it would make counting difficult.
How to measure private sector investment? Recently more PPP is included for infrastructure development.
How to measure local government investment? Many projects are co-financed by national and local governments.
How to make the tracking comparable across countries and along time? If we want to use the result as benchmarking, we need common or at least comparable definition of DRR and counting method.
And lastly it requires additional administrative burden on government. 16

17. STEP5 (related): Main Challenges in DRR Investment Tracking: Lessons from the recent studies
DRR budget of DM Agency: easy to identify
Main DRR tools embedded in sectoral budgets
DRR Infrastructure investment
- 100% for DRR (not embedded)
e.g. coastal levees
- x % for DRR (embedded but separable) sub-category of budget item
e.g. emergency train stop equipment for train
- multiple purpose including DRR (completely embedded)
e.g. multi purpose dam, meteorological monitoring
Embedded investment is the biggest issue to be tackled. So I would like to explain this issue with more detail. DRR budget of DM Agency is easy to identify. But main DRR tools are embedded in a variety of sectoral budgets.
Consider the DRR infrastructure investment. Infrastructures such as coastal levees are 100% deddicated for DRR. In other words, the investment of this kind is not embedded and easy to track. The second type is the investment some percentage of which is for DRR. This is embedded in expenditure item but separable. For example, emergency train stop equipment for train is a part of investment in train. But it is separable due to its independency of parts. However, the problem is we need sub-category of budget item which are often difficult to obtain. Third type is the most difficult one to be tackled. For example, sometimes meteorological monitoring is explained as aiming for weather forecast not for DRR but actually it works for DRR. For the second and the third types, the DRR items is often hidden in budget documents. We need more concrete and detailed information regarding this kind of sectoral expenditures. 17

18. STEP5 (related): Critical infrastructure: US and UK definition
Agriculture and Food
Food
Defense industrial base
Energy
Energy (oil, gas, electricity)
Healthcare and public health
Health
National monuments and icons
Banking and finance
Financial services
Water
Chemical
Commercial facilities
Critical manufacturing
Dams
Emergency services
(police, fire, ambulance, coastguard)
Nuclear reactors, materials and waste
IT communications
Communications (telecom, post, broadcast)
Postal and shipping
Transportation system
Transportation (highways, rail, ports, aviation)
Government facilities including schools
Government
However, it is a great task to analyze all sectoral expenditure. Many sectoral infrastructures are related with and dedicated for DRR. This table shows the US and UK definition of critical infrastructure as example. As you see, the listed infrastructures extend over the jurisdiction of many sectoral ministries. It is thus a challenge to track even amount of DRR investment with certain level of accuracy, let alone its impact on DRR. 18

19. Conclusion: Toward comprehensive risk finance strategy
(1) Constructing information and knowledge base is essentially important.
Not only hazard risk information but also disaster loss and vulnerability information is necessary as a fundamental base for sound policy making
Ensure that information leads to implementation: measuring the impact of policy on DRR would bridge the risk information, vulnerability information and government coping capacity information, and facilitate the DRR investment implementation.
(2) Better governance building is necessary.
In addition to traditional DM agency, MOF and Planning Authority should be key stakeholders.
Sectoral ministries, especially Ministry which has responsibility for infrastructure building, are also important stakeholders.
Private sector, especially insurance sector and construction sector, had better be mobilized for cooperation.
As a conclusion, I would like to address two key messages. First, to mitigate disaster loss and negative economic consequence, you need comprehensive risk finance strategy. And to have such strategy, you need information and knowledge base. Not only hazard information but also disaster loss and vulnerability information is necessary for deciding which policy is taken. And such information must lead to implementation. To measure the impact of policy on DRR, we need risk information, vulnerability information and government coping capacity information, so the impact analysis would integrate those information into one indicator. Then, policy makers would easily understand it and facilitate investment implementation.
Construction of such databases can improve DRR policy efficiency and effectiveness, which is increasingly required under tight budgetary pressures.
Second, as the table of government policy tools or critical infrastructure clearly shows, the DRR is a cross-sectoral issue. In addition to traditional DM agency, MOF and Planning Authority should be mobilized as key stakeholders. Sectoral ministries, especially Ministry which has responsibility for infrastructure building, are also an important stakeholders, which have detailed information and professional knowledge regarding design of each investment projects. Private sector, especially insurance sector and construction sector, had better be mobilized for cooperation because they have risk management knowledge and especially information on private properties.
I would like to emphasize these two issues because HFA progress reports of every country addresses these issues here and there. Without good knowledge base and governance, our efforts would not fully bear fruits. . 19

20. Conclusion: Toward comprehensive risk finance strategy
DRR mitigates disaster loss and negative economic consequences
e.g. Pakistan GDP growth estimate
I would conclude with the graph I presented in the beginning of presentation. The red line shows the real GDP with investment in DRR while blue line shows the GDP without DRR investment. With the investment in DRR, we can outstandingly mitigate the impact of disaster on economy. Even if fully avoiding the impact is impossible, we hope each country can prepare for disaster and invest more in DRR to decrease the painful consequence that disaster brings to economy and people. 20

21. Thank you Contact: Kazuko Ishigaki
United Nations Office for Disaster Risk Reduction
Tel: