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FEATURE: Risk insurance for disaster prone communities in Pakistan

CDKN Project Manager Kashmala Kakakhel reports from a recent workshop in Islamabad which launched a new CDKN partnership with the Government of Pakistan to design a risk insurance scheme that protects the poor.

The water came into our home at night and we had to swim out as quickly as possible. I carried my baby boy on my shoulders. This flood has taken everything away from me, including one of my girls. She breathed in too much water and couldn’t make it”,  Nizam Ali, from Peshawar, Pakistan, narrates his tragedy.

What is even worse is that his story is not unique. More than 20 million people have similar stories when ten years’ worth of rain fell in little over a week, two monsoons ago in 2010. The floods killed nearly 2,000 people and destroyed 10,000 schools, 2 million homes, and hundreds of bridges, roads, and electricity pylons.

Pakistan was not prepared for this scale of destruction.

Historically, the Government of Pakistan has responded to natural disasters – increasing floods, earthquakes, cyclones and droughts – on a case by case basis, relying on domestic budgets, including diversion of resources from other projects, and on extensive financing from international donors. This includes reconstruction of public infrastructure, and cash grants to the most affected people. But the Government has so far struggled, with the resources available, to revive private businesses and livelihoods.

While ex-post disaster funding from the Government and donors can be an important part of a government’s catastrophe risk management strategy, over-reliance on this approach has major limitations in terms of efficiency, effectiveness, and sufficiency.  The Government has also struggled, with the resources available, to revive the private sector and restore livelihoods.

Realising that Pakistan will continue to be plagued by multiple hazards, the Government is stepping up to develop and implement an integrated risk management system to increase resilience and promote economic development. It wants to ensure a secure future for Nizam Ali and millions of others like him.

The Government has decided that financial risk mitigation measures should be an important part of this framework. This was listed as a priority action in the National Disaster Risk Management Framework (NDRMF). Pakistan has a well-developed insurance sector (but focused on life and indemnity based property insurance) which – together with the sophisticated banking system, and network of microfinance institutions – suggests there is potential for new products that can protect disaster prone communities.

The National Disaster Management Authority (NDMA) approached CDKN for support in turning their ambitions into reality, and as a first step a joint expert workshop was recently organised to assess the need and demand for insurance protection.

At the workshop the NDMA introduced their plans and how by ensuring that sufficient liquidity exists very soon after a disaster, they hope modern funding approaches such as micro insurance for the vulnerable communities will help to speed recovery and ensure that scarce government funds are well used. They are planning for the scheme to cover insurance for life, food security, housing, small businesses, crops and livestock.

The 30 participants, all executive managers with responsibility in the field of disaster risk management from NGOs, insurance companies, the regulatory authority, the State Bank, other government agencies as well as donors, then questioned the Government and provided constructive inputs and recommendations

It was agreed across the board that the level of risk against a range of perils has not actually yet been quantified throughout Pakistan. Though the overall hazards are known, the extent and magnitude has only been assessed in smaller areas considered as “pilot regions”. The vulnerability of communities is also somewhat offset by the social resilience displayed by the citizens of Pakistan in the face of any disaster.

Despite this, time is proving that the “Ex Post” financial options are eventually going to decline in the coming years, therefore it is important to move from “Ex-Post” to “Ex Ante” risk financing (the current set up finances the costs after an event in contrast to the Ex Ante financing that use “savings” eg. in the form of insurance to cover the damage costs).

The recommendations harvested at the workshop have provided invaluable guidance for CDKN and the NDMA to prioritise the financial risk transfer options to achieve highest possible impact. This workshop was an important first step in what will be a lengthy process to design and test and implement such a scheme.

While the team recognises that the insurance cover may not reduce the immediate impact of a disaster, there is confidence that ensuring timely finance may contribute to faster recovery thus reducing the long-term impact of a disaster.

This workshop was part of a CDKN project which is providing technical assistance to the NDMA Pakistan in the design and development of a framework for risk insurance for disaster prone communities. For more information on the project contact 

Image courtesy of Oxfam International @ flickr creative commons


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