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WED5.5: Special Swiss Re session on Financial Tools for Disaster Risk Management
Organized by Swiss Re
Special Swiss Re session on financial tools for disaster risk management
Swiss Reinsurance Ltd
The costs of natural disasters represent a growing burden for governments and societies in developing and emerging countries. In 2011, the total economic losses to society due to disasters reached a record high of USD 370 billion in 201 , of which only about USD 116 billion was insured. In developing countries this gap between insured and total economic losses tends to be much wider. Risk mitigation and risk transfer must go hand in hand to make societies more resilient. This session will discuss innovative insurance solutions on macro (government) and micro (low-income households) level to close the financing gap, and it will explore what is needed to mainstream financial tools for disaster risk management.
Regional insurance facility in Central America – an integrated approach to risk management and risk transfer
Inter-American Development Bank
Boosting agricultural production and stabilizing farmers' income through index insurance in Vietnam
Agriculture is a key sector in Vietnam. It secures the livelihoods of more than half of the country's 86 million people. Rice is by far the most important crop. But frequent natural disasters such as drougths, floods and typhoons threaten rice production. When crops fail, rice farmers across Vietnam lose an essential source of income. As a consequence, they are often unable to repay their loans or make much needed investments for the next growing season. A new innovative insurance scheme helps to mitigate the impact of poor harvests. It defines payouts according to an independent area-yield index that draws on data from Vietnam's Bureau of Statistics. The insurance product disburses funds if, after a natural catastrophe or disease, the rice yield in a certain geographic area falls below the expected output of an average yield.
Proposal for a national earthquake insurance program for Greece
University of Pireaus
Greece is characterized by its high seismic exposure. It is estimated that the economic loss to the residential stock of a 1-in-200 year event is likely to be greater than 22 billion Euros while for a shorter return period 1-in-5 year it is likely to be 1.3 billion Euros. This potential loss severity was estimated by employing four different renowned catastrophe models and by developing a valuable and unique data bank of the residential stock in the country. The severity of losses underscores the urgent need for establishing a National Earthquake Insurance Program that will replace the ex post disaster relief by the State when an earthquake occurs. It is proposed that earthquake coverage up to a maximum amount should be provided on a compulsory basis to all homeowners at affordable but risk-based premiums which consider location and construction period. Transfer of earthquake risk to international reinsurers safeguards high capacity and success of the program in the long run. The program should provide insurance to all home owners, without excluding old houses, at a cost much lower than the private market. Expected claims response will increase penetration which will lead in better reinsurance terms or even expansion of the program to cover other catastrophic risks. A national risk management approach will prove to be beneficial for the Greek society overall."
Bundling of risks for disaster proofing
CARE, India, Republic of
In India, insurance providers traditionally focused on either offering low cost products for covering insignificant risk events or unaffordable products for high value cover in rural areas. CARE as part of its Insure Lives and Livelihoods project, introduced micro insurance services in 2006 as part of long range risk reduction strategy in coastal districts of Tamil Nadu affected by 2004 Tsunami in collaboration with private insurance providers. CARE commissioned a risk assessment study through an external agency to understand the risk needs of low income communities, assessing premium capacities of low income households, most preferred mode of premium payment and most favoured channel partner for distribution and defining benefits of compensation. The study also revealed several challenges that needs to be overcome before gaining rightful place for micro insurance services in low income households and on such major challenge was bundling of products. The participants of the study opined that they need a product that can cover their basic risks. Majority of the people in coastal areas employed in informal economy of those most of them landless labourers in the absence of formal social security schemes, they preferred to have cover for property against natural disaster, illness, accidents, wage loss, disability, and death cover besides covering their spouse too. CARE worked with the insurance provider to design product based on the recommendations of the study. The product designed offers comprehensive risk cover to a family at low value premium, the risk covered are accidents related hospitalization, illness, wage loss, death, disability and cover for huts against natural disaster and accidents. The project so far distributed 345,000 insurance plans and the claim experience was fairly good; project helped 16,468 households seek claims worth of over 950,000 USD. The claim experience demonstrates relevance of insurance services to low income households.
Lessons from various microinsurance schemes and key success factors
Swiss Reinsurance Ltd
Low-income communities are often the ones most vulnerable to disaster risks. Financial tools, such as insurance, can contribute to reduce vulnerability by transferring risks to the private sector. Yet, access to insurance is often limited because traditional risk transfer solutions do not adequately meet the need and demand of low-income communities. Moreover, the capacity to pay for traditional insurance products is limited. In the context of financial inclusion, microinsurance is considered a viable solution to respond to these challenges. Based on Swiss Re's experience with agricultural and disaster risk solutions, the presentation will not only discuss the challenges but also the key success factors in microinsurance.