Abstract
Disasters cause devastations to nations. They can completely derail a country’s economic progress. The comparative study of the financial planning for national-scale disasters for Cuba and Belize offers a deep analysis of the various disasters that the two countries have faced.
In addition, the focus is on the financial planning approaches that the two countries have put in place, especially on the issue of disaster risk transfer.
It is evident that despite the importance of risk insurance for disasters, the two countries have not put in place the right measures to boost insurers’ capacities to provide catastrophe risk insurance. As the paper confirms, the situation requires a fast redress.
Introduction
Disasters can be defined as catastrophes of unimaginable proportions that are caused by natural or man-made activities. They are associated with the destruction of property, infrastructure, and economic disruptions that overwhelm the capacity of a country to cope with the damage.
As Schipper and Pelling (2006) confirm, “disasters that are triggered by natural hazards are a consequence of development failure, as much as failed development is the product of disasters” (p. 22).
In the last one decade, the world has woken up to this reality and realised the need to review disaster preparedness, emergency response, and recovery approaches that are in place with the view of not only reducing the impacts of such disasters but also with the desire to cushion people, organisations, and governments from financial losses.
Therefore, this paper addresses the financial planning for national-scale disasters by comparing the disaster risk reduction and financial planning strategies and approaches for Belize and Cuba.
Countries and Disaster Risk Profile
Cuba
Cuba is a Caribbean Island, which forms the most populous nation in the Caribbean region. The nation, which lies approximately 150km from Florida, the USA, has a population of approximately 11million people. The island is the only nation that has a high human development index among communist-led nations.
In fact, Human Development Report (2014) presents, “Cuba’s HDI value for 2013 as 0.815—which is in the very high human development category—positioning the country at 44out of 187 countries and territories” (p. 2). The diagram below is a map of Cuba showing its location relative to other nations in the Caribbean Sea.
Figure 1: Map of Cuba.
Source: (WorldAtlas, n.d).
Owing to its location, Cuba faces different risks of natural and human origins. Firstly, the country is located in the Western Caribbean Sea. Therefore, it is exposed to extreme hydro-meteorological events such as Hurricanes, tropical storms, and high-intensity rainfalls.
The nation of Cuba has a 6-month hurricane season that lasts from July to November. “The hurricane season is from July to November…September and October are the months with the highest probability of cyclone activity” (Cuban Adventures, n.d, Para. 3).
In a 10-year period between 1998 and 2008, the country experienced more than 20 tropical storms. 14 of them became hurricanes while seven were very intense. In the same period, more than 10 million people had to be evacuated from their homes to avoid loss of lives and injuries.
In addition, during this time, the hurricanes and storms led to destructions of infrastructure, damages to over one million houses, and economic losses that were estimated at USD$18billion. For this reason, the storms affected more people than any other hazards in the nation of Cuba.
The second hazard that the Caribbean nation faced was floods (Medic Review, n.d). Due to its high and intense tropical storms, the country received very high rainfalls from June to November. This situation exposed it to the risk of flooding.
Indeed, according to Oxfam America (2004), flooding produces a serious devastation in Cuba where an approximated 540, 000 are affected. For example, between 1980 and 2010, floods killed approximately 107 people out of the slightly more than 200 deaths that are reported in the country.
This finding represents a casualty rate of 53.5% of all deaths that result from disasters in the nation.
Other events that the country has faced include droughts, earthquakes, and diseases, although some of them have not caused any deaths or noticeable damages. For example, the country faces the risk of earthquakes, especially due to its location near the Oriente Fault Zone.
This location has been blamed for almost all tremors and earthquakes that have been reported in the history of Cuba. The diagram below shows the location of the Oriente Fault Zone relative to Cuba.
Figure 2: Oriente Fault Zone.
Oxfam America (2004) confirms, “2,137,000 of 11 million people in Cuba are classified as vulnerable population living in high risk areas” (p. 26). Six significant hurricanes occurred from 1996 to 2002.
The total number of people who lost lives during this period is estimated at 16 while the number of those who were directly and indirectly affected stood at more than 2.3 million people.
Storms account for a better share of losses and damages to property and economy in the nation, although the country seems well-prepared to handle storm disasters (Bermejo, 2006).
As Bermejo confirms, “When hurricane Jeanne assaulted Haiti in 2004, more than 3,000 died (4)…In Cuba, where the same storm came ashore even more powerfully, no one died” (p. 14). The diagram below shows Cuba’s share of each hurricane disaster in the number of people who lost lives, the number of affected people, and economic losses.
Number of people Killed by Disasters.
Source: (Cuba Hurricanes, n.d).
Belize
According to the World Fact Book (2014), Belize is a small Central American nation of approximately 300,000 people. It borders Mexico to the North, Guatemala to the West and South, and the Caribbean Sea to the East.
As the figure below shows, ninety-five Percent of the country is on a mainland while the rest is distributed on several islands in the Caribbean Sea (World Fact Book, 2014).
Figure 5: Belize.
Source: (World Fact Book, 2014).
The country’s location is one of the most active hurricane zones of the world. It has a long lying coast of over 300km that makes it highly vulnerable to hurricanes and floods. Others include tidal waves, wind damage, fire disaster, and landslides.
Of these hazards, hurricanes have had the most devastating impacts on the small nation while high winds and storms have caused considerable damages. For example, since the beginning of disaster events in 1871, the nation has been hit by a major storm every three years.
In the recent past, during the period 1935-2005, the country was hit by 11 hurricanes. Specifically, according to Marty (2014), “The 1931 Belize hurricane was a devastating Category-4tropical cyclone that struck British Honduras on 10 September 1931, killing an estimated 2,500 people” (Para. 1).
The cyclone destroyed residential and commercial buildings. The government was financially impaired since it had to secure finances to bring business back to life by restoring the destroyed residential and commercial structures.
The principal hazards that affect Belize, namely tornados and tropical gales, cause enormous losses that range from wind destructions to blizzard gushes and extensive downpour. In 1961, another hurricane, which was referred to as Hurricane Hattie, caused significant financial losses.
As Marty (2014) confirms, “Hattie left about $60 million in damage and caused 307 deaths” (Para. 63). This figure represented the largest economic loss to ever face Belize to date. It is categorised as the most fatal catastrophe ever to strike the country.
Recently, Hurricane Sandy that happened in 2012 was destructive where “132,733 homes were damaged, of which 15,322 were destroyed and 43,426 lost their roof” (Cuba Hurricanes, n.d, Para. 3). The witnessed loss went up 50mil GBP.
This loss put the country in a great debt, as it struggled to renovate the many damaged areas such as Santiago, Guantanamo, and Holguin among other regions (Cuba Hurricanes, n.d). In 2006, it had to restructure its public debt to avoid running into a financial crisis.
The country also faces minor seismic and tsunami risk due to its relative position near the boundary of three tectonic plates.
Three major flood events and eight (8) hurricanes affected the country from 1980-2010. The following table shows a summary of the events.
Source: (UNISDR, n.d).
In addition to the increased threats to infrastructure and property, the country’s agricultural sector provides only 13% of its GDP according to World Fact Book (2014) after the industry and service sectors that provided 23% and 64% respectively as at 2012.
Hence, the farming sector is highly threatened, especially by tropical storms and hurricanes.
Consequently, in realisation of the threats that the country faces, especially from hurricanes, it has had to review its disaster preparedness and emergency response approaches with the aim of reducing the impact of such disasters on the economy.
Financial Planning for National-Scale Disaster in Belize and Cuba
In the process of disaster risk reduction, financial planning relates to the efforts that nations put in place to reduce the risk of financial losses because of disasters.
It is evident that the enormous losses that disasters inflict on populations and nations are no longer tenable and hence the need for mechanisms to be put in place to reduce or transfer the risk of financial losses to third parties.
As Bermejo (2006) says, “Lack of preparation is common, even in rich countries, although preparedness is the only way to save lives and preserve natural resources” (p. 14).
Looking at the cases of Belize and Cuba, although they have not experienced major disasters as compared to other countries such as the USA and Japan, the few catastrophes that have happened have left them on the brink of financial disaster.
However, the use of mainstream insurance has proven that such insurance approaches of financial risk transfer are inadequate to cover the losses that are incurred during mega-disasters. A case in point is the Hurricane Andrew of 1992 in the US where total losses from the disaster amounted to more than $19billion.
What followed this disaster were numerous insurance claims that exceeded the capital reserves of many insurance companies, which forced their closure and collapse.
In fact, as McChristian (2012) asserts, “Limited availability of insurance coverage for the most vulnerable property was a problem before 1992, yet became amplified in Andrew’s aftermath” (p. 3).
The events of this period were an awakening point for many insurance companies, governments, and the international community on the need for new approaches to catastrophe risk insurance, which would effectively handle the large losses in such events.
The fact that disasters are also increasing in terms of frequency and devastations than the previous times paints a grim picture of the catastrophe insurance sector where insurers are facing difficult times while trying to meet their obligations in the event of disasters.
In the light of these factors, in addition to catastrophe insurance services, the international community, led by the UNSDR and governments of respective nations, has put in place elaborate Disaster Risk Reduction (DRR) plans (Jaffee & Russell, 1997).
These measures that start with disaster awareness, application of building codes, early warning systems, emergency response, and recovery are aimed at reducing the impacts of hazards on communities, thereby reducing the subsequent financial losses that would have been incurred in the absence of such DRR measures.
With such DRR measures, it is expected that the world will have more resilient societies, more withstanding buildings, and infrastructure, as well as coping mechanisms that will not only reduce the financial impacts of disasters but also ensure a faster recovery and return to normalcy after the disasters (Twigg, 2004).
The measures to eliminate the need for catastrophe insurance will greatly reduce the amount of claims, which will ensure that the insurance providers can cope with the situation.
As Trench-Sandiford (2006), the country established the Disaster Preparedness and Response Act in 2000, which was later revised in 2012 as the primary legislation on Disaster Risk Management (DRM) in this Central American country.
The goal was to “to provide a coordinating framework for disaster management” (Trench-Sandiford, 2006, p. 4).
Through the Act, the government established the National Emergency Management Organisation (NEMO) whose role was to coordinate general government policies relating to disaster mitigation, response, recovery, and preparedness (Trench-Sandiford (2006).
However, this Act had one major drawback. It did not expressly deal with risk transfer. The leaving out of this important part of disaster risk management effectively reveals that Belize has lagged behind in its efforts of disaster risk management.
The country is vulnerable to large financial losses in the event of large disasters in the country. However, important efforts in the form of insurance have been vital in reducing financial losses to the country, although they are not directly related to risk transfer.
Consequently, such efforts have allowed the country to be better prepared to respond and recover from disasters. Insurances play the role of “risk assessment to determine premiums” (Trench-Sandiford, 2006, p. 44).
For instance, it is important to note that major economic losses to a country due to disasters have been caused by increased developments in terms of infrastructure and buildings, which have exposed a large number of vulnerable resources to the risk of destruction in the event of disasters.
In the light of this situation, with its favourable economic growth, Belize has experienced increased growth in terms of developments that are likely to be exposed to the risk of destruction by disasters.
To address this issue and to cushion the government and people from financial losses from property destruction, the government put forward the Belize Building Act of 2003, which was later amended in 2005. The Act was meant to “to regulate the construction of buildings countrywide” (Trench-Sandiford, 2006, p. 4).
In this Act, the government provided regulations for building operations, covering building and infrastructure codes. These codes are very important in ensuring that buildings can withstand the forces of hurricanes and tropical storms that are common in the country.
The Land Utilisation Act of 2000 provided a room for the subdivision and utilisation of land. Due to the high amounts of rainfall that the country receives, it is highly vulnerable to flooding, which causes the second highest losses in the country after hurricanes and storms.
Of great concern is the devastation that the agricultural sector, which is the main foreign exchange for the country, faces (Trench-Sandiford, 2006).
Consequently, to protect the country’s agricultural lands and/or cushion farmers from financial losses because of destroyed farm produce due to flooding, the land utilisation Act plays a vital role in guiding farmers on how to utilise and subdivide land to reduce the risk of flooding.
By reducing the risk of flooding, which may affect a vital economic activity for the country, Belize can ensure that it can continue to access foreign exchange, which can be used to support other DRR projects in the country.
The country also has the Environmental Protection Act, which guides the carrying out of environmental impact assessments and to approve environmental impact assessments, which are subject to consultation with the National Emergency Coordinator (NEC) (Trench-Sandiford, 2006).
Through this Act, the government can ensure that all projects incorporate disaster risk considerations, and where necessary ensure that such projects are built to be resilient and resistant to hazards that have been identified during the assessment.
The Coastal Zone Management Act is an important ruling that provides a room for the management of coastal zones that are very vulnerable to high waves. The Act “promotes sustainable development of the coastal areas and associated ocean areas” (Trench-Sandiford, 2006, p. 39).
It enhances the incorporation and undertaking of sustainable development of coastal resources.
Lastly, although it is very shallow, the Insurance Act of 2004 provides a framework through which domestic insurers can strengthen their risk coverage for disasters.
However, these provisions have not strengthened the insurer’s capacities to effectively cover major disasters. Consequently, there is a minimal coverage for major disasters due to the limited financial reserves by companies.
As such, from the above discussions, it is evident that while the government puts important emphasis on disaster risk management activities as evidenced by the various Acts that cover important segments of DRR, financial risk transfer in terms of insurance is less developed, despite the important role that it can play in cushioning the government and people from financial losses to disasters (McChristian, 2012).
Overall, the country’s policy framework with reference to disaster risk management in Belize is highly fragmented with overlapping sector-based policies that make accountability and centralisation of such activities very difficult.
To address this challenge, it will be important for the government to strengthen the regulatory framework for insurers to allow them to grow their capacities to effectively offer catastrophe risk insurance. In Cuba, Disaster Risk Reduction efforts are highly considered.
The government has put in place extensive measures towards reducing the risk of hurricanes, floods, and other hazards that affect the country. However, these efforts, just like those of Belize, have failed to address the necessary considerations to the financial planning and catastrophe risk insurance that is highly desirable for the country.
Firstly, the country has enforced building codes that guide the construction of buildings and infrastructure with the aim of ensuring that they can withstand hazards. The goal is to protect the country from financial losses that relate to the destruction of buildings and infrastructure.
IT has introduced the GIS mapping plan that investigates the strength of structures in disaster-prone areas (Oxfam America, 2004).
Secondly, the country has also been at the forefront together with international organisations in the designing and putting in place of early warning systems that can allow a room for evacuation of people and property when necessary.
The strategy is meant to effectively cut down on the financial losses that can be incurred in the event of a disaster.
Thirdly, although the country has a robust insurance sector, it has failed to effectively offer catastrophe insurance services, owing to the high risk that such a coverage poses to companies by threatening their existence. Catastrophe insurance is very costly.
It requires organisations to have the financial muscles in terms of monetary reserves to offer compensation in the event of disasters. As such, the lack of capacity of insurance providers to offer catastrophe insurance is a major challenge in the sector that must be addressed accordingly in Cuba.
Discussion
Financial planning in disaster risk management plays a critical role in cushioning nations and people from serious financial losses that can be very disruptive once they happen. As disasters become more destructive and more costly, nations have been forced to a look into alternative methods of risk reduction.
Insurance will play an important role in this approach to DRR. However, as discussed above, due to the high costs that are involved in catastrophe risk insurance, there is a need to find approaches that will increase insurance firms’ capacity to handle such risks.
The case of Belize and Cuba clearly shows the risks that the two nations face from different hazards, yet their efforts towards DRR have ignored risk insurance in relation to disasters.
As such, in addition to their ongoing DRR activities, the two countries will have to revisit their regulatory frameworks on risk insurance and help the insurance sector to expand its capacity to offer catastrophe risk insurance, which will cushion them (countries) from financial losses from future calamities.
Conclusion
The comparative study of Cuba and Belize has highlighted important aspects relating to disasters that face the two countries. The two countries have had their unique hazards and a fair share of past disasters that have caused major disruptions to their economies.
Therefore, they need to revisit their approaches to financial planning with the aim of providing risk transfer options such as insurance covers that can protect people from financial losses.
Financial planning is becoming the new best practice as far as disaster risk reduction efforts are concerned. Consequently, the two countries must join the bandwagon to reduce the financial impact of their future disasters.
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