Lec 4 -Engaging at international (global) level - CAT

Question 1

What is CAT?

Answer 1

Catastrophe modelling; it is a tool for risk management

Learn how to draw the CAT model!!!

Question 2

Types of disaster risk financing

Answer 2

1) Traditional insurance
• Pay out basis: claims i.e. actual losses
• Advantages = pay-out = loss sustained
• Disadvantages = very slow processes, pay out only pays for the insured assets too

2) Alternative risk transfer instruments (CAT bonds)
• Risk transferred to financial markets - greater risk bearing capacity than insurance/reinsurance firms
• Investors purchase bonds, high returns
• If a specified trigger event occurs, the principle is released the sponsor (i.e. local government)
• If no event occurs b4 the bond matures, the principal together with profit is returned to investors.
• Pay-out basis: trigger mechanism, scenario-based e.g. location and magnitude.
• Advantages: Immediate pay out
• Disadvan: Pay-out basis risk where basis risk = difference between actual losses incurred by sponsor and payment received by sponsor

Question 3

Who are the end-users of CAT models?

Answer 3

• DRR policy makers in funding organisations e.g. UN
• Governments
• Risk financers

Question 4

Flood CAT modelling

Answer 4

1) Hazard
• Rain data: intensity-duration-frequency curves
• Catchment identification (land use, geology)
• Inundation maps

2) Vulnerability
• Damage estimation on building type e.g. inundation depth for RC

3) Loss calc.:
• Life Cycle Cost and ROI: effective decision variables for urban flood risk management
- allows for econo. feasibility of different alternatives comparison
- the reduced flood damage to the exposed asset can be avoided costs (LCC) or as returns (ROI)
- use of these measures allows one to see the visible cost of a program over its lifetime