Promoting adaptation through information: Flood insurance and weather insurance


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Mr Arindom Baidya, Agricultural Analyst at the Centre for Insurance and Risk Management presented on Promoting adaptation through information; flood insurance and weather insurance at the Financial Instruments for Climate Change Adaptation seminar on May 16th 2011.

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Promoting adaptation through information: Flood insurance and weather insurance

  1. 1. Building safety nets for the vulnerable against catastrophe & weather vagaries<br />Arindom Baidya<br />CIRM - IFMR<br />May 16th, 2011<br />
  2. 2. Centre for Insurance & Risk Management<br />CIRM was established in the year 2006 as a design and research centre at Institute of Financial Management and Research (IFMR), Chennai<br />Engage in product design & action research to facilitate greater market outreach of risk management solutions to poor households<br />About Us <br />
  3. 3. Outline<br />Role of Insurance<br />In disaster management<br />In promoting preparedness<br />Risk Management in Climate Change <br />CIRM’s Climate Risk Management Strategy<br />CIRM projects<br /><ul><li>Meso level flood insurance
  4. 4. Comprehensive risk reduction for farmers</li></ul>Way Ahead<br />Flow of the Presentation <br />
  5. 5. Disaster Management <br />Short-term emergency assistance <br /> Long term infrastructure & sustainable development assistance <br />Liquidity Gap <br />Role of Insurance<br />Emergency <br />Response<br /> Reconstruction & <br />Rehabilitation<br /> Recovery <br /> Time <br />Catastrophe <br />Adapted from CCRIF: Application of risk analysis & modeling in insurance sector<br />
  6. 6. Promoting Preparedness <br />Role of Insurance<br />The Tradeoff<br />Significant amount of money locked in disaster relief funds. <br />
  7. 7. Promoting Preparedness <br />Role of Insurance<br />The Tradeoff<br />Insurance can help unlock the money that is kept for relief and use it for climate change adaptation and mitigation<br />
  8. 8. Can Insurance battle climate change ?<br /><ul><li>Insurance is a post event compensatory mechanism
  9. 9. Insurance doesn’t affect the average outcome of insured event
  10. 10. Insurance spreads cost over time & geography
  11. 11. Climate change induces covariate risks at a global scale</li></ul>Risk Management Framework<br />Promote actions that generate net social benefits under all future scenarios of climate change.<br />
  12. 12. Adaptation Strategy<br />Risk Management Framework<br />
  13. 13. CIRM’s Climate Risk Management Strategy<br /><ul><li>Supporting Adaptation Measures
  14. 14. Enhance adaptive capacity
  15. 15. Evaluate cost effectiveness of resilience building measures
  16. 16. Promoting Loss Reduction
  17. 17. Information about risks
  18. 18. Advice on adaptation options
  19. 19. Provide suitable insurance options
  20. 20. Developing New Insurance Products
  21. 21. Assessment of risk & vulnerability
  22. 22. Design risk reduction & risk transfer activities</li></li></ul><li>CIRM’s Projects<br />
  23. 23. Risk Reduction: OXFAM in Bangladesh<br />Raising Homes:<br />Increasing flood intensity <br />Move houses onto higher foundations helps protect people’s homes.<br />Meso-Level Flood Insurance<br />Raised Tubewells:<br />Floods contaminates water supply<br />Raising tubewells can prevent potentially fatal diseases.<br />
  24. 24. Risk Reduction: OXFAM in Bangladesh<br />Radios:<br />Changing farming calendars, Delay in flood warnings <br />Weather forecasts, Special broadcasts alert<br />Meso-Level Flood Insurance<br />Rescue Boats:<br />Slow response by official rescue agencies <br />Rescue boats with the DMCs<br />
  25. 25. Residual Risks: <br />Embankment Breaches<br />Recurring Floods – 1962 (3 floods in July, August, September) <br />Intense Local Floods – Sylhet (1966), <br />Catastrophic Floods – Inadequate funds for ex-post relief & rehabilitations (1987 , 1988, 1998) <br />Meso-Level Flood Insurance<br />1998 2/3rd of Bangladesh flooded for almost 13 weeks<br />1.2 million of Grameen’s 2.3 million customer affected<br />
  26. 26. Meso-Level Flood Insurance: Bangladesh<br />CIRM is designing flood index – based insurance schemes for catastrophic floods, where the MFIs are insured.<br />Project Details:<br />Design - CIRM, IWM<br />Implementation - OXFAM GB<br />Insurer - Pragati Insurance <br />Project Location - Sirajgunj , BD<br />Initiation - 2009<br />Meso-Level Flood Insurance<br />
  27. 27. Structure of Flood Insurance<br />Client Data<br />Digital Evevation Model<br />Payout Structure<br />Financial<br />Module<br />Meso-Level Flood Insurance<br />Analysis<br />Hazard<br />Module<br />Loss<br />Module<br />
  28. 28. Creating Risk Awareness<br />Free weather forecasts, advisory messages & regular real time weather data on farmers’ mobile phones<br />CIRM is testing the concept of bundling weather insurance & weather forecasts<br />Comprehensive Risk Management<br />Project Details:<br />Implementation : WRMS <br />Research: CIRM<br />Insurer: ICICI Lombard<br />Project Location: West Bengal & Assam<br />Initiation: 2009<br />
  29. 29. Poor acceptance for complex products<br />Complex product considered opaque by the farmers & distributors.<br />-Farmers may view the process to be vulnerable to manipulation.<br />Distribution Challenges<br />
  30. 30. Improving acceptability <br />Handling Product Complexity <br />Split product according to multiple weather variables for ease of understanding. <br />Distribution Solutions<br />Handling Trust Issues <br />Enroll Local Agro-input dealers, cooperatives, MFIs and NGOs as point of servicing <br />
  31. 31. Improving acceptability <br />Smallholder access to weather securities:<br />Demand & impact on consumption & production decisions<br />CIRM is testing the acceptability of simple contracts amongst farmers by offering: <br /><ul><li>Choice to the farmer to build his risk hedging strategy through building block approach
  32. 32. Risk cover for shorter period and identifiable loss triggers</li></ul>Distribution Solutions<br />Project Details:<br />Design : IFPRI, CIRM<br />Insurer: HDFC Ergo<br />Project Location: Madhya Pradesh<br />Initiation: 2010<br />
  33. 33. Obstacles in designing<br />Poor data availability<br />Loss data <br />Client data <br />Vulnerability research <br />Poor disaster monitoring infrastructure <br />Lack of climate change models<br />Way Ahead<br /><br />
  34. 34. Visit us at<br /><br />&<br />Follow our blog<br />Thank You<br />