Promoting adaptation through information: Flood insurance and weather insurance

Building safety nets for the vulnerable against catastrophe & weather vagaries
Arindom Baidya
CIRM - IFMR
May 16th, 2011

Centre for Insurance & Risk Management
CIRM was established in the year 2006 as a design and research centre at Institute of Financial Management and Research (IFMR), Chennai
Engage in product design & action research to facilitate greater market outreach of risk management solutions to poor households
About Us

Outline
Role of Insurance
In disaster management
In promoting preparedness
Risk Management in Climate Change
CIRM’s Climate Risk Management Strategy
CIRM projects
Meso level flood insurance
Comprehensive risk reduction for farmers
Way Ahead
Flow of the Presentation

Disaster Management
Short-term emergency assistance
Long term infrastructure & sustainable development assistance
Liquidity Gap
Role of Insurance
Emergency
Response
Reconstruction &
Rehabilitation
Recovery
Time
Catastrophe
Adapted from CCRIF: Application of risk analysis & modeling in insurance sector

Promoting Preparedness
Role of Insurance
The Tradeoff
Significant amount of money locked in disaster relief funds.

Promoting Preparedness
Role of Insurance
The Tradeoff
Insurance can help unlock the money that is kept for relief and use it for climate change adaptation and mitigation

Can Insurance battle climate change ?
Insurance is a post event compensatory mechanism
Insurance doesn’t affect the average outcome of insured event
Insurance spreads cost over time & geography
Climate change induces covariate risks at a global scale
Risk Management Framework
Promote actions that generate net social benefits under all future scenarios of climate change.

Adaptation Strategy
Risk Management Framework

CIRM’s Climate Risk Management Strategy
Supporting Adaptation Measures
Enhance adaptive capacity
Evaluate cost effectiveness of resilience building measures
Promoting Loss Reduction
Information about risks
Advice on adaptation options
Provide suitable insurance options
Developing New Insurance Products
Assessment of risk & vulnerability
Design risk reduction & risk transfer activities

CIRM’s Projects

Risk Reduction: OXFAM in Bangladesh
Raising Homes:
Increasing flood intensity
Move houses onto higher foundations helps protect people’s homes.
Meso-Level Flood Insurance
Raised Tubewells:
Floods contaminates water supply
Raising tubewells can prevent potentially fatal diseases.

Risk Reduction: OXFAM in Bangladesh
Radios:
Changing farming calendars, Delay in flood warnings
Weather forecasts, Special broadcasts alert
Rescue Boats:
Slow response by official rescue agencies
Rescue boats with the DMCs

Residual Risks:
Embankment Breaches
Recurring Floods – 1962 (3 floods in July, August, September)
Intense Local Floods – Sylhet (1966),
Catastrophic Floods – Inadequate funds for ex-post relief & rehabilitations (1987 , 1988, 1998)
1998 2/3rd of Bangladesh flooded for almost 13 weeks
1.2 million of Grameen’s 2.3 million customer affected

Meso-Level Flood Insurance: Bangladesh
CIRM is designing flood index – based insurance schemes for catastrophic floods, where the MFIs are insured.
Project Details:
Design - CIRM, IWM
Implementation - OXFAM GB
Insurer - Pragati Insurance
Project Location - Sirajgunj , BD
Initiation - 2009

Structure of Flood Insurance
Client Data
Digital Evevation Model
Payout Structure
Financial
Module
Analysis
Hazard
Module
Loss
Module

Creating Risk Awareness
Free weather forecasts, advisory messages & regular real time weather data on farmers’ mobile phones
CIRM is testing the concept of bundling weather insurance & weather forecasts
Comprehensive Risk Management
Project Details:
Implementation : WRMS
Research: CIRM
Insurer: ICICI Lombard
Project Location: West Bengal & Assam
Initiation: 2009

Poor acceptance for complex products
Complex product considered opaque by the farmers & distributors.
-Farmers may view the process to be vulnerable to manipulation.
Distribution Challenges

Improving acceptability
Handling Product Complexity
Split product according to multiple weather variables for ease of understanding.
Distribution Solutions
Handling Trust Issues
Enroll Local Agro-input dealers, cooperatives, MFIs and NGOs as point of servicing

Improving acceptability
Smallholder access to weather securities:
Demand & impact on consumption & production decisions
CIRM is testing the acceptability of simple contracts amongst farmers by offering:
Choice to the farmer to build his risk hedging strategy through building block approach
Risk cover for shorter period and identifiable loss triggers
Distribution Solutions
Project Details:
Design : IFPRI, CIRM
Insurer: HDFC Ergo
Project Location: Madhya Pradesh
Initiation: 2010

Obstacles in designing
Poor data availability
Loss data
Client data
Vulnerability research
Poor disaster monitoring infrastructure
Lack of climate change models
Way Ahead
http://www.microinsurancemap.com

Visit us at
www.cirm.in
&
Follow our blog atwww.ifmr.ac.in/cirm/blog/
Thank You

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Promoting adaptation through information: Flood insurance and weather insurance

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Promoting adaptation through information: Flood insurance and weather insurance — Presentation Transcript