Solomon Islands

Country Note: Solomon Islands - Disaster Risk Financing and Insurance (February 2015)

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Executive Summary

This report aims to build understanding of the existing disaster risk financing and insurance (DRFI) tools in use in the Solomon Islands and to identify gaps where engagement could further develop financial resilience. It also aims to encourage peer exchange of regional knowledge, specifically by encouraging dialogue on past experiences, lessons learned, optimal use of these financial tools, and the effect these tools may have on the execution of post-disaster funds.

The Solomon Islands is located in an area known for frequent tropical cyclones and is also in the Pacific Ring of Fire, an active seismic area. Consequently, it is exposed to both hydrometeorological and geophysical hazards. This exposure was clearly demonstrated at the end of December 2012, when the country experienced Tropical Cyclone Freda, followed in early February 2013 by a magnitude 8.0 earthquake and a subsequent tsunami affecting the Santa Cruz Islands.

The Solomon Islands is expected to incur, over the long term, average annual losses of SI$145 million (US$20 million) due to earthquakes or tropical cyclones. In the next 50 years, the Solomon Islands has a 50 percent chance of experiencing a single event loss exceeding SI$1.7 billion (US$240 million), and a 10 percent chance of experiencing a single event loss exceeding SI$3.7 billion (US$520 million) (PCRAFI 2011).

The Solomon Islands government has a variety of tools for financing the cost of disasters, but the funds are limited and can be quickly exhausted. The disaster relief budget allocated to the National Disaster Council (NDC) is small—SI$2.2million (US$305,250) in 2013—and is quickly exhausted, as happened during the response to the Santa Cruz earthquake and tsunami. There is a 77 percent chance that disaster losses will exceed this budget amount in any given year. If these funds were exceeded, the government would need to source remaining funds from the contingency warrant and pursue budgetary reallocation. Consequently the Solomon Islands tends to rely heavily on donor support to fund post-disaster expenditures.

The NDC met on the day of the Santa Cruz earthquake and was able to immediately mobilize SI$1 million (US$138,000) to purchase relief supplies. This is equivalent to approximately half of the annual budget for response. The remaining SI$1.2 million was exhausted shortly for the additional supplies needed, for the first shipment following updates from situation reports identifying the need for greater quantities of relief goods. The first shipment of goods to the affected area had fully exhausted the annual response budget. In light of the small amount of dedicated funds allocated to the NDC and the speed with which they can be used up, the Solomon Islands government should consider the reactivation of the National Disaster Council Fund, or the use of other DRFI instruments such as contingent credit to ensure additional sources of liquidity following an event.

Anecdotal evidence suggests that the Ministry of Finance and Treasury (MoFT) would benefit from the development of a post-disaster budget execution manual to improve staff awareness of post-disaster procedures and processes. During the Santa Cruz response, the bid waiver process was not adhered to; MoFT staff were unaware of this process because it is rarely used. As a result, there were significant delays in the purchase of necessary relief items.

A number of options to improve DRFI are presented here for consideration:

(a) Develop a post-disaster budget execution manual to improve awareness of post-disaster procedures and processes;

(b) Develop an integrated disaster risk financing and insurance strategy; and

(c) Explore the use of other DRFI tools such as contingent credit to access additional liquidity post-disaster.