Philippines gets disaster insurance pilot & $500m disaster contingent loan from ADB

The Asian Development Bank (ADB) has launched its first pilot disaster insurance scheme in the Philippines and has also approved a $500 million loan for the country that is contingent on a natural disaster or public health emergency occurring.

The contingent loan facility is similar to the World Bank catastrophe deferred drawdown options (CAT-DDO’s) that provide a guaranteed source of financing on the declaration of a disaster or emergency.

This ADB contingent disaster financing instrument covers both natural catastrophes and health emergencies, so could trigger for disasters such as typhoons or earthquakes and also for a repeat of the pandemic, it is assumed.

“The Philippines has been hit by several major disasters in recent years, including Typhoon Haiyan (Yolanda) in 2013, the Taal Volcano eruption in January 2020, and the ongoing coronavirus disease (COVID-19) pandemic,” explained ADB Vice-President Ahmed M. Saeed.

“This new contingent disaster financing instrument will help the government manage fiscal risks posed by those shocks and lessen the economic and social impacts on people’s livelihoods and the country’s economy.”

“The Disaster Resilience Improvement Program will support government policy reforms aimed at ensuring the government can quickly address the needs of vulnerable segments of the population following disasters. It will also strengthen the Philippines’ overall response to disasters and pandemics,” added ADB Financial Sector Specialist for Southeast Asia Benita Ainabe.

This program also supports the launch of the ADB’s first pilot disaster insurance scheme, that targets several cities across the Philippines, aiming to bolster their fiscal resilience to disasters and severe weather events.

The goal is to provide a predictable, timely source of financing for post-disaster response, so presumably this is a parametric insurance product designed to pay-out when local government sources need it

Of course, the Philippines benefits from a number of disaster insurance and reinsurance capital sources, including its first catastrophe bond that was issued with the assistance of the World Bank last year, the IBRD CAR 123-124 transaction.

The government of the Philippines is also readying a re-bid for its insurance of state-owned assets and infrastructure, we understand.

The country is also looking into a new catastrophe risk pool for the private sector, and already has a parametric natural disaster insurance cover that was completed in late 2018 at $390 million in size and has backing from reinsurance and insurance-linked securities (ILS) players.