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Financial and Fiscal Instruments for Catastrophe Risk Management

Financial and Fiscal Instruments for Catastrophe Risk Management

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This applied study addresses the large flood exposures of Central Europe and proposes efficient financial and risk transfer mechanisms to mitigate fiscal losses from such natural catastrophes. In 2010 the V-4 Visegrad countries (i.e., Poland, Czech Republic, Hungary and Slovakia) demonstrated their historical vulnerability to floods – Poland suffered $3.2 billion in flood related losses, comparable to it $3.5 billion of losses in 1997. Flood modeling analysis of the V-4 shows that a disaster event with a 5 percent probability in any given year can lead to economic losses in these countries of between 0.6 percent to 1.9 percent of GDP, as well as between 2.2 percent to 10.7 percent of government revenues. Larger events could quadruple such losses. The European Union Solidarity Fund is available as a mechanism for disasters but it comes into effect at only very high levels of losses, does not provide sufficient funding, and is not speedy
This applied study addresses the large flood exposures of Central Europe and proposes efficient financial and risk transfer mechanisms to mitigate fiscal losses from such natural catastrophes. In 2010 the V-4 Visegrad countries (i.e., Poland, Czech Republic, Hungary and Slovakia) demonstrated their historical vulnerability to floods – Poland suffered $3.2 billion in flood related losses, comparable to it $3.5 billion of losses in 1997. Flood modeling analysis of the V-4 shows that a disaster event with a 5 percent probability in any given year can lead to economic losses in these countries of between 0.6 percent to 1.9 percent of GDP, as well as between 2.2 percent to 10.7 percent of government revenues. Larger events could quadruple such losses. The European Union Solidarity Fund is available as a mechanism for disasters but it comes into effect at only very high levels of losses, does not provide sufficient funding, and is not speedy

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Publish date: Jul 2012
Added to Scribd: Jul 02, 2012
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12/19/2015

This section includes a review of government post-disaster safety nets as well as those
provided by the private insurance market in the CEE V-4 countries. Although several
natural hazards afect the regions, most of disaster related losses in can be atributed to
the risk of food.

Objectives, Scope, and Methodology

The analysis atempts to establish the extent of fnancial vulnerability of governments
and households to natural hazards in four countries of the CEE V-4 by examining:
■ The fscal policy of the four Central European countries in the areas of post-disas-
ter relief and reconstruction.
■ The extent of catastrophe insurance coverage provided by the private insurance
industry in the region as well as the technical capacity of national insurance mar-
kets to manage catastrophe insurance risk.
Besides documenting the current state of government and market-based safety nets
for homeowners and SMEs afected by natural disasters, the analysis also suggests a
range of practical solutions and policy recommendations with the view of reducing

Financial and Fiscal Instruments for Catastrophe Risk Management

121

the fnancial vulnerability of the region to natural disasters. The analysis was prepared
based on a series of writen surveys followed by interviews with key government of-
cials, government experts and insurers in the four countries.

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