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The role of insurance in ‘building back safer’ May 2008 Ian O’Donnell ProVention Consortium

Explore the importance of insurance in disaster risk management, including microinsurance, macro-level initiatives, and the impact on vulnerable communities. Learn about ProVention Consortium and current insurance strategies.

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The role of insurance in ‘building back safer’ May 2008 Ian O’Donnell ProVention Consortium

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  1. The role of insurance in ‘building back safer’May 2008Ian O’DonnellProVention Consortium

  2. Topics • Background on ProVention Consortium • Roles of insurance • Current insurance initiatives • Microinsurance • Macro-level insurance

  3. 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.

  4. Photos: Reuters Background Launched 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, povertyand 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

  5. Insurance … as a component of comprehensive disaster risk management

  6. 1) Spread risks that cannot be reducedSharing risks is an integral part of resilience.

  7. 2) Protect development and recovery investmentsIntegrating 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.

  8. 3) Provide incentives in managing risksPromoting a culture of risk reduction and contingency planning that rewards individuals, households, and communities for reducing risks.

  9. 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

  10. Micro … insurance? Source: http://www.flickr.com/photos/crizk/2228334791/

  11. 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

  12. 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

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

  14. 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

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

  16. 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

  17. Insurance as a financial catalyst

  18. 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

  19. 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

  20. 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)

  21. Challenges • 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

  22. Macro insurance schemes Source: http://veimages.gsfc.nasa.gov/7100

  23. Ethiopia Drought Insurance Source: http://www.flickr.com/photos/andrewheavens/100063334/

  24. Ethiopia Drought Insurance CFW/FFW for acute livelihood stressed population PROBLEMTIMING OF INTERVENTIONS APPROACHING A SOLUTIONBETTER TIMING OF BETTER INTERVENTIONS Emergency Appeal Life Saving Interventions (mostly food) Emergency Needs Assessment Enrollment of safety net beneficiaries Aug Sept Oct Nov Dec Jan 2009 Feb Mar Apr May June July Aug Index triggers Contingent grant disburses Source: WFP, Jan. 2007

  25. 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

  26. 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

  27. 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

  28. 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?

  29. 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.

  30. 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

  31. 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

  32. www.proventionconsortium.org

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