Mitigation and financial risk management for natural hazards

The importance of public-private partnerships for disaster management has been stimulated by catastrophic losses from natural disasters in the United States and other parts of the world. Hurricane Andrew which created damage to Miami and Dade/County, Florida in September 1992 and California’s Northridge earthquake together cost the insurance industry (US$28 billion) and an additional US$17.6 billion. The Kocaeli earthquake in Turkey in August 1999, which caused over 19,000 confirmed fatalities with massive disruptions to the economy of Western Turkey, has led to a recognition by the Turkish government, industry and the public of the urgent need to develop and enforce better building standards. This paper explores disaster management strategies for reducing losses from natural disasters and providing financial resources to victims of these devastating events in both developing countries and emerging economies. More specifically, it will examine programs that involve the private sector such as insurance and capital market instruments (e.g. Act of God bonds) in combination with public sector programs such as regulations and standards (e.g. well-enforced building codes). In developing and evaluating these programs the paper addresses the following three questions: (1) How can one utilize risk assessment methodologies for estimating the potential damage and the uncertainties surrounding these figures for earthquakes of different magnitudes and intensities? (2) What role can loss prevention measures, insurance and new financial instruments play in reducing losses from future earthquakes and providing funds for recovery? (3) How can one utilize model cities for evaluating the linkages between risk management strategies that involve both the public and private sectors for dealing with large-scale earthquakes?