In November 2013, Super Typhoon Haiyan struck the Philippines with the strongest winds the country had ever seen, but the substantial storm surge generated proved even more deadly. According to the United Nations Office for the Coordination of Humanitarian Affairs (OCHA), 14 million people across 44 provinces were affected and more than 1 million homes were damaged, including more than half a million destroyed. In addition to more than 6,000 dead and almost 2,000 missing, 4.1 million people were displaced by the storm.
One key to improving a nation's future resilience to natural catastrophes is for public and private stakeholders to understand the scope of the risk and potential financial impact before major events occur. A number of companies are involved in initiatives to help developing nations in this way.
AIR, for example, has a long history of working with organizations on disaster risk financing projects for the public good. These projects are designed to provide risk management services for at-risk nations that might not otherwise be able to adequately assess their risk. For these projects, AIR uses risk quantification methods to help governments get insurance to protect them from natural catastrophe losses. These projects are also an opportunity for AIR to develop new models and to enhance existing ones.
AIR has participated in several catastrophe risk assessment projects for the World Bank and regional development banks to assist some of the world's most vulnerable nations. This includes ongoing studies for the Asian Development Bank, in collaboration with Swiss Re and the Asian Disaster Preparedness Center, to establish an integrated disaster risk management framework in select cities in Vietnam, Indonesia, and the Philippines. AIR's Boston and Hyderabad offices are also working on a project for the Asian Development Bank to develop earthquake and tropical cyclone models for the entire country of Bangladesh for disaster risk financing options. And AIR was also recently awarded a project by the World Bank to develop models for five island states in the South-West Indian Ocean for the purpose of quantifying the risk and developing risk mitigation options.
AIR has also previously completed a study for the World Bank-the Pacific Catastrophe Risk Assessment and Financing Initiative(PCRAFI)-to quantify the natural disaster risk faced by 15 small island nations in the South Pacific. In January 2014, Tonga was the first country to benefit from a payout under the Pacific Catastrophe Risk Insurance Pilot (PCRIP), a derivative of the PCRAFI study, and received an immediate payment of USD 1.27 million toward recovery from Cyclone Ian. AIR developed the underlying risk models and provided the post-event loss calculation for the PCRIP transaction.
More recently, AIR is using its expertise to assist the Government of the Philippines, through a World Bank Technical Assistance program, with its disaster risk management objectives. This 2014 study furthers the understanding of earthquake and typhoon hazard in the Philippines, the vulnerability of the population and built environment, as well as the direct and indirect financial costs. The study will inform the possible development of physical mitigation strategies, as well as market-ready disaster risk finance mechanisms such as catastrophe bonds and insurance pools.
The hope is that while typhoons like Haiyan (and worse) are inevitable in the future, their impact-including loss of life, property damage, and other catastrophic social and economic effects-can be significantly reduced in a cost-effective manner.