LIRNEasia is a regional ICT policy and regulation think tank active across the Asia Pacific

Happy to see insurance coming into the resilience discussion

From as long ago as 2005, we at LIRNEasia have been talking about insurance as a critical element in disaster risk reduction. And we have been pushing this idea at ESCAP, among other places. But somehow, we did not see it gaining traction.

But finally, it seems to be:

For a farmer in Zimbabwe, adopting this model will entail accessing strong climate data so she knows when best to plant and harvest. By purchasing parametric insurance – that is, insurance that pays out not on proof of loss but when a defined event is above a pre-determined and measurable trigger – she will receive a pay out if rainfall is under a certain level by a certain date. In this way, she can use the money to plant for next year’s harvest.

When individuals’ assets and livelihoods are better protected, it puts less pressure on affected Governments to lead large-scale reconstruction and recovery, saving funds and protecting their hard-earned development gains. Research has shown that a 1 per cent increase in insurance penetration can reduce the disaster recovery burden on taxpayers by 22 per cent. Designing resilience into their projects from the start will reduce future losses.

Insurance will also enable response agencies to plan ahead more effectively and predictably. And for donors, insurance will bring significant cost-savings and give greater value for money. Data from the African Risk Capacity (ARC), a climate-risk insurance mechanism, reveals that each dollar spent on the mechanism is equivalent to US$4 in traditional emergency assistance costs.

2 Comments to Happy to see insurance coming into the resilience discussion

  1. January 20, 2017 at 10:24 pm | Permalink

    >By purchasing parametric insurance – that is, insurance that pays out
    >not on proof of loss but when a defined event is above a per-determined and >measurable trigger – she will receive a pay out if rainfall is under
    >a certain level by a certain date.

    Non parametric insurance is essentially a weather derivative. Weather derivatives can be traded.
    https://en.wikipedia.org/wiki/Weather_derivative

    Weather derivatives works fine with temperature and Chicago Mercantile Exchange offers standardized HDD/CDD contracts

    The problem with rainfall is that it is spotty. i.e. can rain on one side of the road but not on the other side. Satellite imagery is a possible solution, unhappily it is expensive to get images on a local resolution. Worked on this in 1998-2003 (at one of the first weather derivatives companies), but image costs were prohibitive.

    Another side issue is that weather derivative/insurance should be a Cap and Floor. You get paid if rain is too little or too much.

  2. January 20, 2017 at 10:31 pm | Permalink

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