The Taiwan Banker

The impact of catastrophic natural disasters on public assets has become an issue of concern for Asia-Pacific countries. By analyzing different examples of catastrophic risk management of public assets globally, we can find many issues relevant for Taiwan. The Asia-Pacific region is located on the Pacific Rim, where in recent years the scale and frequency of natural disasters like earthquakes, tsunamis, volcanoes, and typhoons has risen. In June, the World Bank hosted an APEC Workshop on Financial Management of Public Asset Disaster Risks in Tokyo, Japan, where participants discussed the frequent financial losses caused by large-scale disasters. The October 17, 2018 APEC Finance Ministers Meeting also accepted the outcome of this workshop.Since 2011, APEC has had a working group to study issues related to financial management of public asset catastrophic risk. World Bank experts have also participated in the guidance, reported each year to the Finance Minister’s Meeting. In 2017, the Meeting called for countries to collaborate and share experience on disaster risk and financing insurance (DRFI) policies and public asset financial risk management, and to design a questionnaire for APEC countries on their management of public asset catastrophic risk. Thus, catastrophic risk management has become an important topic in the Asia-Pacific region. The countries participating in the workshop also agreed to cooperate with the APEC host, Papua New Guinea, to add catastrophic risk financial management policies to the 2019 APEC Finance Ministers’ Meeting agenda. In the workshop, experts in catastrophic risk, engineering and databases introduced practical methods to mitigate the effect of natural disasters. Representative countries like Vietnam, Mexico, Australia, and New Zealand shared their experience through case studies involving public assets, database management, loss assessment tools, and insurance mechanisms.Japan: Restoring Water and Gas as Soon as Possible after Earthquakes Japan is located on the Ring of Fire, so earthquakes are a frequent occurrence. Hirokazu Tatano, a professor at the Institute of Disaster Management of Kyoto University, used four major earthquakes in Japan (in 1995, 2004, 2011 and 2016) to estimate the real estate damage caused. Based on that data, the damages can be divided into three types: buildings, government infrastructure (such as roads and bridges), and lifeline facilities (such as drinking water pipelines, power transmission lines, and gas pipes). Discussion of natural disasters used to focus on the physical losses requiring private or public repair or replacement; therefore, public opinion focused on the direct costs. With the questionnaire, Tatano found that damage to infrastructure and lifelines in past earthquakes caused losses around 10 times the direct costs. For Japan, with its place in global supply chains for basic products like machinery, components, chemicals, and semi-finished products, it is even more important to restore the supply of water, electricity, and gas as quickly as possible.Vietnam: Building a Database to Lay the Groundwork for InsuranceThe World Bank has provided funding to assist the Vietnam Ministry of Finance to set up a National Public Asset Database (NPAD), which includes assets such as public land, roads, buildings, vehicles, and public assets valued over US$ 20,000. It records maintenance, previous maintenance costs, and historical disaster damage data, helping the estimation of damages and disaster frequency, and laying the groundwork for insurance.The Ministry has however found that database integration is not straightforward. Taking land and buildings – making up the largest portion of NPAD items – as an example, aside from the Ministry of Internal Affairs, most information on land comes from local governments, and the format of information entered from various sources diverges. Aside from the need to spend large amounts of human and material resources to organize the data, some items lack images and historical geolocation data, making the use of NPAD difficult.Mexico: Providing Disaster Relief Funding, and Issuing Disaster Bonds and InsuranceIn order to strengthen assessment of public asset risks and provide government at all levels with funds for disaster relief and post-disaster reconstruction, the Mexican government established the Natural Disaster Fund (FONDEN) in 1996. Aside from providing 0.4% of the annual federal budget for relief, FONDEN issued disaster bonds and insurance to allocate and transfer financial risk.FONDEN is currently a trust-based system, and a FONDEN reconstruction trust has been established under the (main) FONDEN fund. The purpose of the reconstruction fund is disaster prevention, funding risk assessment and control. Each sub-fund assesses losses, allocates funds, and manages individual projects.Australia/New Zealand: The QGIF and Earthquake Insurance FundThe Queensland Government Insurance Fund (QGIF) was set up in 2001 under the Queensland Treasury. Queensland legislation requires all public buildings to be insured using the QGIF. The premium is budgeted by the body using the property, and the premiums collected each year by QGIF are equal to the insurance expenditures plus necessary operating costs. Investment of the funds is left to the Queensland Investment Corporation, and the scope of investment is limited to safe, liquid securities.QGIF is not-for-profit and is not licensed for insurance, so its coverage is limited to real estate in Queensland. Since measures like strengthening building design and improving drainage facilities can reduce claims, institutions with buildings can see benefits within five years. The New Zealand Treasury set up an Earthquake Commission responsible for managing insurance funds. The fund accumulates reserves through mandatory earthquake premiums and investment income, and uses the international reinsurance market to spread risks. In case of a disaster, it relies on the Commission and reinsurers, depending on the claim amount. In the event of excess loss, the government bears ultimate responsibility.The National Property Administration of the Taiwan Ministry of Finance has set up a “management system for public assets” to inventory state-owned property including data on changes in value, repair, and movement of land, buildings, movable property, and negotiable securities. Information such as the land information system and disaster potential maps are however built by other bodies. If Taiwan, like Australia, can further integrate its various public asset information systems, it would help in calculations of disaster frequency and severity, and thus risk, and further insure public assets, to the benefit of public asset disaster risk management. In addition to existing budgetary mitigation, disaster reserves, and special budgets, Taiwan can also promote disaster financing schemes from Europe, US, Australia, and New Zealand, such as public and private insurance funds. (The author is the Chief of the International Section of the Financial Securities Commission.)