tool for Disaster management. A study in. South and South East Asia. Sunil Bhat. MicroSave .... Fax: +91-522-4063773. Ne
Index based insurance as a tool for Disaster management A study in South and South East Asia
Sunil Bhat MicroSave November 2013
Study by MicroSave in collaboration with CDKN CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of MicroSave is strictly prohibited
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Microinsurance products •
Traditional crop insurance
• • • •
Yield-based crop insurance or Multiple Peril Crop Insurance (MPCI) Damage-based indemnity insurance or Named Peril Crop Insurance Area-yield index insurance
Traditional disaster insurance policies such as policies against earthquakes, storms etc. Traditional livestock insurance Weather-based index insurance policies Livestock index insurance policies
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Index Insurance Product
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Traditional Insurance vs Index Insurance Traditional Insurance
Index Insurance
Assessment
Actual assessment
Proxy
Timeliness of payout
Slow
Faster
Financial sustainability
Unsustainable (historically)
Sustainable
Pricing
Non-actuarial
Actuarial
Cost
Cheaper
Expensive
Vintage
Longer
Relatively shorter
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Scenario in South and South East Asia
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India Started by Private Players, Government Schemes Are Now Dominant
Started 2003 WBCIS is the most prominent scheme in India 14 states in Kharif 2011, 13 states in Rabi 2011-12; 35 different crops Public player AIC of India and 13 different private insurers
States without WBCIS
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Pakistan Donor Driven, Government is yet to Catch Up
Started 2012 Pilot by PPAF and IFAD In Soon Valley and Talagang Insurance companies: Alfalah and United Insurance
Index pilots Khushab and Chakwal districts
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Sri Lanka Entirely Donor Driven
Started 2008 Pilot by ILO, DID and SICL in 2008 In 2011, IFC’s Global Index Insurance Facility (GIIF) Insurance company: Sanasa Insurance Company Limited
Anuradhapura Polonnaruwa Kurunegala
Kegalle
Kaluthara
Galle
Badulla Ratnapura
Matara
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The Philippines Government and Donor Working Together
Started 2011 Philippines Crop Insurance Corporation (PCIC) collaboration with ILO, World Bank and GIZ Insurance company: Public insurer Philippines Crop Insurance Corporation Private player MicroEnsure also offers index products
Isabela
Leyte (Tacloban) Ilo Ilo
Butuan
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Indonesia Dominance of Private Players
No index product ACA Asuransi offers disaster products for dengue and earthquake MAIPARK and GlobalAgRisk planning to offer an earthquake based index product Failed product: PT Wahana Tata flood index insurance (GIZ and Munich Re)
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Trends in index insurance
Started by Private players; taken over by Government Support from international donors agencies Sum insured = cost of cultivation or the size of the loan amount Premium = risk premium + administration cost + commissions Dependence on subsidy Distribution challenges Improving understanding levels of farmers is challenging Faster claim settlements Loanee versus non-loanee farmers
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Challenges faced by Index Products Weather infrastructure- basis risk Reinsurance support Subsidy dependence creates doubts on sustainability Kharif + Rabi: Contribution to premium
Premium (INR million)
14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Kharif Rabi Kharif Rabi Kharif Rabi Kharif Rabi Kharif Rabi 2007 2007-08 2008 2008-09 2009 2009-10 2010 2010-11 2011 2011-12
Farmer contribution
Central Government
State Government
Kharif Rabi 2012 2012-13
Gross premium
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Potential for scaling up index insurance
Identification of the right parameter is essential for successful programme Governments should be part of the programme Ensure reinsurance before piloting. Investment in weather infrastructure is a must Capacity of local stakeholders should be increased Bancassurance channel should be put to use Client literacy and education must be a priority Create research and development capabilities
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