shelter meeting, 15 – 16 may 2008 the role of insurance in building back safer the role of...

Shelter Meeting, 15 – 16 May 2008

The role of The role of insurance in insurance in

‘building back ‘building back safer’safer’

May 2008Ian O’Donnell

ProVention Consortium


Topics

Background on ProVention Consortium

Roles of insurance

Current insurance initiatives

Microinsurance

Macro-level insurance


What is ProVention?

ProVention Consortium is a global alliance of international organisations governments civil society organisations academic institutions private sector

dedicated to increasing the safety of vulnerable communities and to reducing the impacts of disasters in developing countries.


BackgroundLaunched in 2000 by the World Bank in response to:

– Increasing frequency and severity of disasters; social, economic and environmental impact on the poor;

– Growing awareness of the link between disasters, vulnerability, poverty and development;

– Need for a more collaborative and concurrent approach in the field of disaster risk management.

Currently hosted at the International Federation of Red Cross and Red Crescent Societies in Geneva

Photos: Reuters


Insurance … as a component of comprehensive disaster risk management


1) Spread risks that cannot be reduced

Sharing risks is an integral part of resilience.


2) Protect development and recovery investments

Integrating an insurance-linked disaster preparedness perspective in all development planning and activities will reduce transaction costs for development agencies and provide protection to development investments.


3) Provide incentives in managing risks

Promoting a culture of risk reduction and contingency planning that rewards individuals, households, and communities for reducing risks.


Without insurance …Households

deplete their savings

borrow at high interest rates

forego development investments (like

education)

Countries retarget development funds

forced to rely on donor assistance


Source: http://www.flickr.com/photos/crizk/2228334791/

Micro … insurance?


Microinsurance helps the poor to break the poverty cycle by

Protecting their livelihoods and

encouraging higher yield (higher risk)

activities

Providing access to immediate liquidity

Assuring recovery assistance with

dignity and as a right


How microinsurance works

Source: ‘The Landscape of Microinsurance in the World`s 100 Poorest Countries’, MicroInsurance Center 2007, http://www.microinsurancecentre.org/UploadDocuments/Landscape%20study%20paper.pdf


Source: ‘The Landscape of Microinsurance in the World`s 100 Poorest Countries’, MicroInsurance Center 2007, http://www.microinsurancecentre.org/UploadDocuments/Landscape%20study%20paper.pdf


Key features of current schemes Public private partnerships

Agent model for distribution and client

relations

Reinsurance for covariant risk in which all

policyholders might be affected at once

Enabling environment

Bundling of various coverages


Source: http://www.flickr.com/photos/developmentseed/15175658/


Relation to microfinance

Insurance for micro-credit loans

Protection of assets that have been secured with micro-credit (and of the loans themselves)

Increased access to credit


Insurance as a financial catalyst


Increasing use of microinsurance Variety of programmes in India as a result of 2005

pro-poor regulation

Oxfam post-tsunami microinsurance programs in India

Swiss Re partnership with Millennium Promise in Africa

Munich Re partnership with Suramericana and Women’s World Banking in Columbia


Use for housing

Gujarat reconstruction insurance program covering 14 types of hazards for 10 years at premium of Rs.367 deducted from the last financial installment of reconstruction grants from the state


Index insurance Use of triggers instead of inspection of damage

Reduces administrative costs by removing claims adjustment

Most often used with rainfall measures for crop insurance

Other uses being explored for satellite imaging of flood damage (Thailand and Vietnam)


Affordability

Links to other financial & insurance services

Evidence of benefits to most vulnerable?

Little link to risk reduction

Role of risk perception in motivation

Impacts of climate change on insurability

Challenges


Macro insurance schemes

Source: http://veimages.gsfc.nasa.gov/7100


Ethiopia Drought Insurance

Source: http://www.flickr.com/photos/andrewheavens/100063334/


PROBLEMTIMING OF INTERVENTIONS

Aug Dec Jan 2009

Feb MarSept

Emergency Needs Assessment

Emergency Appeal

Apr May June July Aug

Life Saving Interventions (mostly food)

Enrollment of safety net beneficiaries

CFW/FFW for acute livelihood stressed

population

APPROACHING A SOLUTIONBETTER TIMING OF BETTER

INTERVENTIONS

NovOct

Index triggers Contingent grant disburses

Ethiopia Drought Insurance

Source: WFP, Jan. 2007


Other national insurance facilities

Global Index Reinsurance Facility:

Smooth governments’ potential exposure in emergency relief, reconstruction, and rehabilitation programs

Provide immediate liquidity to client governments

Align underwriting and investment risks with available capital through diversification and risk pooling


Caribbean Insurance Facility:

Provides participating governments with immediate liquidity if hit by a hurricane or earthquake

Allows these countries to pool their risk and reduce their individual insurance premium by some 40%

Defined set of triggers

So for example the facility has not triggered for Hurricane Dean and other recent disasters


Catastrophe Insurance Pools:

Turkey TCIP program - housing insurance

Broadly successful, particularly in high-risk areas, but overall participation rates hover around 20%

Current project in Bulgaria

Includes broader mix of partners (construction companies, NGOs, insurance companies, and government)

Will extend coverage to small businesses


Questions for macro-schemes

Index (parametric) insurance vs. indemnity (explicit loss) basis?

Subsidies? – balance between policyholder and donor roles in covering premium and building reserve levels

Catalysing a commercial market for insurance in target markets by “crowding in” the private sector?


Climate change

Decreasing insurability as the likelihood and magnitude of damage continues to increase?

Reinforces need for reliable data about likely impacts.

May require market interventions from regulators and alternative reinsurance through cat bonds and financial markets.


Outlook

Challenges looking forward: Evidence that insurance really benefits the poorest

communities and clients

Accessing reliable data

Links to risk reduction

Connections to policy and regulatory environment

Partnering structures


Key resources

Microinsurance Center -- http://www.microinsurancecentre.org

‘Microinsurance Compendium’ – at http://www.munichre-foundation.org

‘Disaster Insurance for the Poor’ -- http://www.proventionconsortium.org/themes/default/pdfs/Microinsurance_study_July06.pdf


www.proventionconsortium.orgwww.proventionconsortium.org

shelter meeting, 15 – 16 may 2008 the role of insurance in building back safer the role of...

Documents

shelter meeting

reuters slide

right slide

donor assistance slide

role of insurance

insurance households

micro insurance

development investments