Insurance against natural hazards is a risky business, and not always viable, particularly in the case of low-cost insurance aimed at impoverished people.
But it can work.
“Despite the challenges, and with the help of subsidies, technology and innovative approaches, insurance schemes can play a key role in helping reduce the vulnerability of the poor to weather disasters and global warming,” says Craig Churchill, who heads the ILO Microinsurance Innovation Facility.
But, he points out; “micro” might not be the right format to cover disasters. “We need to look at the meso and macro levels instead.”
|Despite the challenges, ... insurance schemes can play a key role in helping reduce the vulnerability of the poor to weather disasters and global warming."|
Microinsurance schemes that offer protection against specific weather conditions emerged about a decade ago. Most are index-based insurance, which means payments to clients are triggered when specified weather conditions occur, measured for example by rainfall or wind speed.
Many are still at the pilot stage, or have been discontinued because they failed to achieve the scale needed to be viable, according to Protecting the poor A Microinsurance Compendium Volume 2, co-published by the ILO and the Munich-Re Foundation earlier this year.
India is an exception. With more than nine million farmers covered, India’s weather-index insurance market is one of the world’s largest. It is subsidized by the government, making insurance premiums more affordable to low-income farmers.
The involvement of reinsurers is also critical, since they pool risk at a global level.
Plenty of hurdles …
For the insurers, there are challenges at every step of the way.
Before microinsurance policies even can be sold, resources are needed to research risk, determine demand and gather information. Data is essential in creating an insurance product - particularly if it is weather-related – but is often lacking in developing countries.
And a natural catastrophe can wipe out small or regionally focused portfolios.
To be viable, microinsurance schemes need to be affordable and sold on a large-scale.
But to date, microinsurance schemes that have tried to tackle weather and disaster risk at the micro level have not managed to achieve scale without subsidies.
… and some hope
Subsidizing premiums, research, product development or consumer education can help improve the effectiveness of index-based weather insurance, the report says.
It also suggests the possibility of focusing on larger interventions.
Meso-level schemes are relatively new, but “their potential for viability and scale seems quite promising,” the report says. It cites the example of the Microinsurance Catastrophe Risk Organisation (MiCRO) - created in March 2011 to help protect Haiti's micro-entrepreneurs from the economic impact of natural catastrophes.
At the macro scale, the report cites the Caribbean Catastrophe Risk Insurance Facility (CCRIF), a risk-pooling facility that provides coverage at a significantly lower cost than what governments in the hurricane-prone region could obtain individually from the insurance market.
“While not specifically microinsurance, interventions at the meso or macro level may be a more effective means of protecting the poor from natural disasters,” the report says.
For more information, please contact ILO spokesperson Hans von Rohland +4122/799-7916, firstname.lastname@example.org