Shelter Meeting, 15 – 16 May 2008 The role of insurance in building back safer The role of insurance in building back safer May 2008 Ian ODonnell ProVention Consortium

Shelter Meeting, 15 – 16 May 2008 Topics Background on ProVention Consortium Roles of insurance Current insurance initiatives Microinsurance Macro-level insurance

Shelter Meeting, 15 – 16 May 2008 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.

Shelter Meeting, 15 – 16 May 2008 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, 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

Shelter Meeting, 15 – 16 May 2008 Insurance … as a component of comprehensive disaster risk management

Shelter Meeting, 15 – 16 May ) Spread risks that cannot be reduced Sharing risks is an integral part of resilience.

Shelter Meeting, 15 – 16 May ) 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.

Shelter Meeting, 15 – 16 May ) Provide incentives in managing risks Promoting a culture of risk reduction and contingency planning that rewards individuals, households, and communities for reducing risks.

Shelter Meeting, 15 – 16 May 2008 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

Shelter Meeting, 15 – 16 May 2008 Source: Micro … insurance?

Shelter Meeting, 15 – 16 May 2008 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

Shelter Meeting, 15 – 16 May 2008 How microinsurance works Source: The Landscape of Microinsurance in the World`s 100 Poorest Countries, MicroInsurance Center 2007,

Shelter Meeting, 15 – 16 May 2008 Source: The Landscape of Microinsurance in the World`s 100 Poorest Countries, MicroInsurance Center 2007,

Shelter Meeting, 15 – 16 May 2008 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

Shelter Meeting, 15 – 16 May 2008 Source:

Shelter Meeting, 15 – 16 May 2008 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

Shelter Meeting, 15 – 16 May 2008 Insurance as a financial catalyst

Shelter Meeting, 15 – 16 May 2008 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 Womens World Banking in Columbia

Shelter Meeting, 15 – 16 May 2008 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

Shelter Meeting, 15 – 16 May 2008 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)

Shelter Meeting, 15 – 16 May 2008 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

Shelter Meeting, 15 – 16 May 2008 Macro insurance schemes Source:

Shelter Meeting, 15 – 16 May 2008 Ethiopia Drought Insurance Source:

Shelter Meeting, 15 – 16 May 2008 PROBLEM TIMING OF INTERVENTIONS AugDecJan 2009 FebMarSept Emergency Needs Assessment Emergency Appeal AprMayJuneJulyAug Life Saving Interventions (mostly food) Enrollment of safety net beneficiaries CFW/FFW for acute livelihood stressed population APPROACHING A SOLUTION BETTER TIMING OF BETTER INTERVENTIONS NovOct Index triggers Contingent grant disburses Ethiopia Drought Insurance Source: WFP, Jan. 2007

Shelter Meeting, 15 – 16 May 2008 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

Shelter Meeting, 15 – 16 May 2008 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

Shelter Meeting, 15 – 16 May 2008 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

Shelter Meeting, 15 – 16 May 2008 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?

Shelter Meeting, 15 – 16 May 2008 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.

Shelter Meeting, 15 – 16 May 2008 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

Shelter Meeting, 15 – 16 May 2008 Key resources Microinsurance Center Microinsurance Compendium – at Disaster Insurance for the Poor -- roinsurance_study_July06.pdf roinsurance_study_July06.pdf

Shelter Meeting, 15 – 16 May 2008www.proventionconsortium.org