“Financing losses from natural and man-made disasters by use of crowdfunding”

The level of insured losses from natural and man-made disasters occurred in the world from 2012 to 2016 did not exceed 30-45%. Therefore, it is necessary to study another perspective source of financing losses refunding from natural and man-made disasters. The objective of this research is to consider financing losses from natural and man-made disasters by use of crowdfunding, especially in emerging countries. It was de- fined that the most appropriate model of crowdfunding for financing losses from natural and man-made disasters is donation model with reward-based and donation-based business models. Stimulus for individuals to take part in crowdfunding for financing losses from natural and man-made disasters can be different depending on their loca- tion and business model. Sets of assessments based on four categories of questions and method of results visualization were used to examine a country’s readiness for crowd- funding on the example of Ukraine. Complete level of Ukraine’s readiness for crowdfunding was defined. It shows that reward-based crowdfunding is the first stage towards crowdfunding implementation and development. Further research should be done to investigate the mechanism of using a tax discount in case of implementation of the reward-based crowdfunding for financing losses from natural and man-made disasters.


INTRODUCTION
Financing losses by use of crowdfunding can become quite perspective in the conditions of high level of uninsured losses from natural and manmade disasters in the world and lack of public financial resources to cover damage from such catastrophic events, primarily in emerging countries.
To achieve the goal, such tasks were done: • to investigate the dynamics of victims and economic losses from natural and man-made disasters occurred in the world from 2012 to 2016; • to define a model of crowdfunding and stimulus for individuals to take part in crowdfunding for financing losses from natural and man-made disasters; • to assess a country's readiness for crowdfunding on the example of Ukraine using infoDev/The World Bank's self-assessment tool.
The abovementioned tool comprises four categories of questions: technology, culture, regulation, capital. This makes possible to assess a country's readiness for crowdfunding in each category and in conjunction. A major problem with the infoDev/The World Bank's self-assessment tool is its focusing mainly on assessing country's readiness for crowdfund investing. Whereas, to achieve the goal of this research, donation model of crowdfunding is taken into account. But, if a country is ready for crowdfund investing, then, it means also its readiness for donation crowdfunding.
The research data in this article are drawn from Swiss Re Institute.
This paper has been divided into two parts. The first part deals with investigation of the dynamics of victims and economic losses from natural and man-made disasters occurred in the world from 2012 to 2016. The second part deals with model of crowdfunding, stimulus for individuals to take part in crowdfunding for financing losses from natural and man-made disasters and assessing a country's readiness for crowdfunding on the example of Ukraine.

DISASTERS
The number of natural and man-made disasters across the world was stable over 300 during the last five years. The dynamics of victims and economic losses from natural and man-made disasters occurred in the world from 2012 to 2016 is presented in Table 1. Table 1 shows that the share of natural catastrophe-related losses is higher and insured less than the share of man-made disaster-related losses. It can be explained by statement that natural catastrophes are less insurable in comparison with man-made disasters because of their recurrence, which makes them more predictable with likelihood of almost 1. This contradicts the theory of probability in insurance. At the same time, man-made disasters are often the consequence of negligence and human errors. This causes problems of moral hazard and adverse selection in insurance. Thus, insurance has considerable restrictions, is quite expensive and does not provide full cover.
The general level of insured losses from natural and man-made disasters occurred in the world from 2012 to 2016 did not exceed 30-45%. Therefore, most of the total losses were not financed by insurers. Because of this, it is necessary to find sources to cover uninsured losses.
It is especially actual issue for emerging countries including Ukraine where insurance penetration (1.4% in GDP) and insurance density (USD 30.0 premiums per capita) are significantly less than in developed countries (Swiss Re, 2016, pp. 45-46). One of the worst catastrophes in terms of victims happened in Ukraine in 2014 (Table 2).

MODEL OF CROWDFUNDING, STIMULUS FOR INDIVIDUALS AND COUNTRY'S READINESS FOR CROWDFUNDING
Low purchasing power, unavailability and underdevelopment of insurance, absence of mutual insurance in the majority of emerging countries lead to creation of other sources of financing losses from natural and man-made disasters. Wish to help in difficulties is a distinctive feature of character of most individuals. Therefore, crowdfunding can be used for financing losses from natural and man-made disasters. There are two models of crowdfunding: • investing, when funders expect monetary compensation; • donation, when "funders donate without expecting monetary compensation" (infoDev/ The World Bank, 2013, p. 20). Donation crowdfunding model divides into rewardbased and donation-based business models. Therefore, these business models of crowdfunding are more appropriate for financing losses from natural and man-made disasters because of their donation character.
The role of government in launching crowdfunding for financing losses from natural and manmade disasters is in providing law regulation of functioning of the crowdfunding platform and implementation of stimulus for individuals to involve and encourage them to take part in crowdfunding ( Figure 1).
The next stage is to assess a country's readiness for crowdfunding on the example of Ukraine taking into account questions from different categories: All questions for Tables 3-6 are from pages 65-66 of this resource http://www.infodev.org/infodevfiles/infodev_crowdfunding_study_0.pdf.
The first category to assess a country's readiness for crowdfunding is questions about technology (Table 3).

REWARD-BASED
S�mulus: wish to help and to get a tax discount for funders as a reward (for example, personal income tax discount) S�mulus: wish to help

DONATION-BASED
Condi�on: if crowdfunding is used to help casual�es inside one country Condi�on: if crowdfunding is used to help casual�es from another country Ukraine got 39 points in assessing a country's readiness for crowdfunding by technology. It is 6.5 points of individual level of readiness for crowdfunding in this category of questions (39/6). It means that technology is readily available and used. In such a case, experts recommend to "engage in events and use technology and social media to promote crowdfunding …" (infoDev/The World Bank, 2013, p. 68).
Another category to assess a country's readiness for crowdfunding is questions about culture (Table 4).
Ukraine got 57 points in assessing a country's readiness for crowdfunding by culture. It is 5.2 points of individual level of readiness for crowdfunding in this category of questions (57/11). It means "moderately developed entrepreneurial capacity and some investment risk tolerance" (in-foDev/The World Bank, 2013, p. 69). In such conditions, experts recommend to continue "… training and mentorship programs, launch broader initiatives that engage early success stories in actively building the ecosystem, create external linkages for additional capacity" (infoDev/The World Bank, 2013, p. 69).
The next category to assess a country's readiness for crowdfunding is questions about regulation (Table 5).    If entrepreneur has hired workers, it is necessary to submit 1 report monthly and 1 report quarterly 3 What is the level of regulation around going out of business/ closing a business? (1 = very burdensome, 10 = very easy) 7 It takes 1 week to close business, but entrepreneur can wait for tax audit quite long (1 month -1 year) 4 In evaluating financial regulation, to what degree does investor protection take precedence over the ability of businesses to raise money to start or grow? (1 = government is focused primarily on investor protection, 10 = government is focused primarily on access to capital for businesses) 0 Government is focused primarily neither on investor protection nor on access to capital for businesses

Total 24
Ukraine got 24 points in assessing a country's readiness for crowdfunding by regulation. It is 6 points of individual level of readiness for crowdfunding in this category of questions (24/4). It means existence of regulation to encourage investment. In such situation, experts recommend that "Governments should encourage the use of donation and perks-based crowdfunding" (infoDev/ The World Bank, 2013, p. 69).
The last category to assess a country's readiness for crowdfunding is questions about capital (Table 6). Complete picture of Ukraine's readiness for crowdfunding is shown in Figure 2.
Summing up the abovementioned information, it is necessary to define the complete level of readiness for crowdfunding. If we divide the total number of points from the assessment 137 (39+57+24+17) into 26 questions, it will be 5.3. It means that there is a good possibility for crowdfunding in Ukraine. Experts advise to implement reward-based crowdfunding as a first stage (infoDev/The World Bank, 2013, p. 67).

CONCLUSION
Overall, this study highlights the need for financing losses from natural and man-made disasters by use of crowdfunding in the conditions of high level of uninsured catastrophic losses in the world. It was defined that more appropriate model of crowdfunding for such purpose is donation model with rewardbased and donation-based business models. Stimulus for individuals to take part in crowdfunding for financing losses from natural and man-made disasters can vary depending on their location and business model. Ukraine's readiness for crowdfunding was examined. Complete level of readiness is 5.3. It means that reward-based crowdfunding is the first stage towards crowdfunding implementation and development. Further research should be done to investigate the mechanism of using a tax discount in case of implementation of reward-based crowdfunding for financing losses from natural and manmade disasters.