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.
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.