68887 v3 GDLN Seminar on Disaster Risk Management in East Asia and the Pacific – 2010 series – Summary of September 16, 2010 Video Conference Microinsurance and its Application in Disaster Risk Management Programs Speakers:  Ms. Zenaida Delica Willison (UNDP Special Unit for South-South Cooperation, Asia Pacific Regional Center, Thailand) zenaida.willison@undp.org  Prof. Robert Tiong (School of Civil and Environmental Engineering, Nanyang Technological University, Singapore) CLKTIONG@ntu.edu.sg  Mr. William Martirez (Microensure, Philippines) william.martirez@microensure.com  Mr. Mehul Pandya (All India Disaster Mitigation Institute) bestteam@aidmi.org Main moderator:  Ms. Lorna Victoria (Training and Learning Circle, Philippines) oyvictoria@yahoo.com Key topics discussed: 1. Role of Intermediaries in Promoting Microinsurance Models for Disaster Risk Management 2. Characteristics of Microinsurance 2. Different types of Microinsurance Models Related to DRR 3. Challenges of the Concept of Microinsurance Executive Summary This seminar on Disaster Risk Management in East Asia and the Pacific focused on applying microinsurance in disaster risk management programs. Different approaches and case studies from Singapore, India and the Philippines provided insights on how recently developed microinsurance models can be used for reducing risks to disasters. Also, how microinsurance models can serve as a tool to reduce poverty in developing countries.  Firstly, the concept of microinsurance (as discussed during this seminar) aims to offer insurance schemes for low-income people to get their livelihood to some extent financially protected from different types of disasters (ranging from natural to biological disasters).  Secondly, effective microinsurance schemes which reduce poverty and are financially sound include both, risk transfer and risk mitigation. Microinsurance schemes are viable tools in the process of mainstreaming Disaster Risk Reduction (DRR) in developing countries.  Thirdly, the development/implementation of microinsurance models is at an emerging state and not yet widely available. The reasons are the limited interest of insurance companies to engage in insurance schemes which do not offer high premiums and low volumes, but rather represent the opposite.  Finally, the limited availability and reliability of weather data in developing countries hinders a stronger engagement of private companies to develop microinsurance schemes related to DRR. 1 Summary 1. Role of Intermediaries in Promoting Microinsurance Models for Disaster Risk Management This seminar offered a platform to present and discuss different microinsurance models and their application in disaster risk management programs. Since the concept is relatively new, intermediaries play a crucial role in developing different types of microinsurance models, for example, the Special Unit for South- South Cooperation (SU/SSC) facilitates the transfer of knowledge, expertise, and technological solutions between different partners ranging from academic institutions to private organisations (e.g insurance companies). Another intermediary is the All India Disaster Mitigation Institute (AIDMI) which acts in both roles, as an academic institution and an intermediary, by providing scientific and technical assistance to insurance companies interested in developing microinsurance models. A third intermediary, which presented its activities during this seminar, is Microensure which works in partnership with organisations that are serving the poor, like microfinance organisations, rural banks, and humanitarian organisations. Their key mission is to negotiate on behalf of the poor and also to offer products which are sustainable for both: an insurance company and their potential clients. 2. Characteristics of Microinsurance According to the working definition (see presentation) from AIDMI microinsurance is defined, as follows: “the protection of low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved�. This definition points out the key objective of the concept of microinsurance, which is to provide affordable insurances adequate for low-income people to protect them from various types of risks. The fact that, particularly in developing countries, few people are insured against impacts of disasters, for example, in India less than 0.5 percent of the population are insured against catastrophes, supports the promotion of microinsurance models. Besides of offering insurances to low-income people by transferring risks, the concept of microinsurance aims to foster the mitigation of risks. Thus, the success of a microinsurance model depends upon two aspects: risk transfer and risk mitigation. The ability of a microinsurance model to provide not only affordable premiums (risk transfer for low- income people), but also to facilitate actions, like awareness programmes (education), funding for improvement of housing structures, etc., is crucial if poverty ought to be reduced effectively. At this point, the term Disaster Risk Reduction (DRR) comes into play which welcomes such risk mitigation efforts as part of microinsurance schemes, especially in developing countries. Again, the opportunity for low-income people to insure their livelihood from damages is fundamental in reducing poverty and characterises one of the objectives of microinsurance schemes. For example, if a person’s house gets damaged due to a natural disaster, he or she may not have to borrow money for rebuilding costs which may prevent from falling into the vicious circle of indebtness. Accordingly, such a person is likely to recover faster from a disaster and may have better chances to leave poverty. 2 3. Different Types of Microinsurance Models Related to DRR During this seminar several microinsurance models were presented ranging from the provision of coverage against natural disasters (floods, typhoons, droughts, etc.), but also from biological hazards, for example, individual sickness in the form of dengue fever. All presented microinsurance models were characterised by relatively low premiums underlining the affordability and focus on low-income people as target groups, for example, the dengue microinsurance introduced in Indonesia costs only US$ 5 per year and indemnifies the insurance holder with up to US$ 200 if he or she suffers from dengue fever. Another example is the microinsurance model named Bahay Asenso introduced in the Philippines by Microensure which offers every house owner and renter (including squatters) for just US$ 10 per year to be indemnified from a wide range of natural hazards (lightning (fire), typhoon, flood, earthquake, volcanic eruption, landslide, tsunami) if they hit. The amount of compensation is US$ 200 for all hazards, except lightning (US$ 1,000). In case evacuation is needed US$ 4 per day (up to 5 days) is handed out unbureaucratically. Furthermore, the loss of family members is also compensated by a certain amount. A similar microinsurance, like the Bahay Asenso, is introduced in the state of Gujarat, India, named Afat Vimo. This scheme offers an annual premium for approximately a three-day wage of a person. The coverage includes losses or damages to the client’s house, loss of work due to accident and death of an earning family member by a sum up to US$ 1,900. Although the previous examples demonstrated microinsurance models available for individual protection, a large number of such models have the objective to cover losses in the agricultural sector due to natural disasters. Reduced incomes (due to loss of production) as a result of flooding or drought are common scenarios faced by rural communities (farmers). Based on various types of indexes (weather indexes, drought indexes, climate change, etc.) measuring the intensity of a natural hazard, pay-outs are provided to insured farmers. For example, rain deficit leading to drought may at some point trigger a pay-out to affected and insured farmers. Similarly, microinsurance schemes exist for crops which are damaged through high winds (typhoon coverage). 4. Challenges of the Concept of Microinsurance The concept of microinsurance is still new and in an emerging state requiring intermediaries to step-in and provide the needed knowledge (scientific) and persuasion to insurance companies that microinsurance models can be developed in a way that they become beneficial for both, insurance companies (economically sound) and clients (low premiums as low-income people are main target groups). Although, weather data exist in many developing countries from the last decades, the reliability of these data (e.g. lack of sufficient weather infrastructure (limited number of stations)) may hinder insurance companies to engage more actively into the development of such insurance schemes. As a result, the World Bank or government-controlled banks often provide subsidies to allow microinsurance models to be put in place (risk sharing). While the holder of an insurance, for example, for a house receives a certain amount of money for compensation, followed by a disaster resulting in damages on that house, this sum may not be sufficient to stimulate the needed long-term improvement of the housing structure in form of Building-Back-Better (BBB). This example highlights the difficulties to effectively implement DRR through microinsurance schemes. However, the aspect of risk mitigation may support individual efforts, like BBB to generate lower premiums and more effective DRR. 3 Further Information For more general information about different research institutes which conduct natural hazard risk assessments or provide open source data, please visit the following links: Organizations:  All India Disaster Mitigation Institute (intermediary, provides tool/products for microinsurance applications): http://www.aidmi.org/  Microensure (intermediary, provides insurance products dedicated to serve the poor in developing countries): http://www.microensure.com/home.aspx  Microfinance Gateway (online resource, provides publications, consultant profiles, and latest news): http://www.microfinancegateway.org/p/site/m/home/  Microinsurance Network (provides a platform for information sharing and stakeholder coordination): http://www.microinsurancenetwork.org/  Special Unit for South-South Cooperation (intermediary, provides tool/products for microinsurance applications): http://ssc.undp.org/Home.118.0.html?&L=0  The MicroInsurance Centre (provides product development, research, advocacy (trainings)) http://www.microinsurancecentre.org/UI/Home.aspx Publications:  All India Disaster Mitigation Institute: Microinsurance for Disaster Risk Reduction, Course Material: http://cfigurasin.com/sscpublications1234/Micro%20Insurance%20for%20Disaster%20Risk%20Reductio n%20(2).pdf  Community Based Disaster Risk Management (CBRM), Tranining and Learning Circle: Integrating Gender into Community Based Disaster Risk Management: http://cfigurasin.com/sscpublications1234/Training%20Manual%20-%20Integrating%20Gender(4).pdf  The World Bank: Microinsurance Business Models, Primer Series on Insurance, Issue 3, 2009: http://siteresources.worldbank.org/EXTFINANCIALSECTOR/Resources/282884- 1242281415644/Microinsruance_Business_Models.pdf 4