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OPINION: The potential of micro-insurance for DRR?

Nasreen Rashid, Executive Advisor, EFU Group of Insurance, Pakistan reflects from the Asian Ministerial Conference on Disaster Risk Reduction (AMCDRR) on the role of micro-insurance in DRR strategies

Flying towards Indonesia, to attend the 5th Asian Ministerial Conference on Disaster Risk Reduction (AMCDRR) last month, I kept wondering how a country that it is located on 4 tectonic plates, with a huge population of 240 million people, and is struck on average by 5 earthquakes per day, has managed to survive and develop?

And Bangladesh, formerly the eastern part of our country, whose 11 million people are living with the constant fear of cyclone threats which strike every year. How do they deal with it, knowing that it will come again the next year, and the next? Not to forget the 2004 Tsunami, the great East Japan Earthquake of 2011, the massive floods of 2010 dislocating millions and derailing the Pakistan economy with losses of 10 billion USD.

Having been brought up in a sleepy little village in Pakistan among farmers, I am quite familiar with the resilience and dignity of vulnerable communities exposed to the vagaries of weather, with nothing to fall back upon except their basic instincts of self preservation and home grown remedies handed over to them by the collective wisdom of their forefathers.

My work in the insurance sector often feels far from the day to day concerns of these communities.  But, I am increasingly realising that innovative financial products have the potential to change the lives of these vulnerable people.

The AMCDRR was a great opportunity to share ideas and experiences with like-minded people and explore the role that finance, particularly micro-insurance, can play as a component of a wider disaster risk reduction strategy.

My main assignment at the conference was to share the plans of the NDMA Pakistan for creating a disaster risk insurance fund and strategy.

In Pakistan, the micro-insurance sector is still in its nascent stage, with insurers focusing only on the wholesale sector. Out of a population of 180 million, there are only 2.6 million policyholders of credit life and health insurance, and only 2 million farmers are covered by crop insurance. But, there are some relevant initiatives that provide lessons to the Government. For example, the Pakistan Poverty Alleviation Fund (PPAF) is a not-for-profit organisation set up by the Government which is testing index based pilots on crop and livestock insurance. China mobile is a telecom operator selling basic accident and death cover in affiliation with a private insurer.

The NDMA Pakistan’s plans are much more ambitious than anything that has been attempted in the country before.  As such, the AMCDRR was a great place to learn from others. A side-event at the AMCDRR organised by the NDMA and CDKN showcased these plans and gained valuable inputs from experts from across Asia and beyond. Zhou Hongjian, Assistant Professor at the National Disaster Reduction Centre for China gave an overview of what was on the agenda at the national level and in Guangdong province in China with regards to risk transfer. Ismet Gungor, General Coordinator of the Turkish Catastrophe Insurance Pool also gave a fascinating case study of why and how Turkey created the pool.  Pakistan is therefore not alone in recognising that the existing approach to funding disaster reconstruction is not sustainable.

Why is micro insurance needed?

The reality is that most Asian countries do not have sufficient resources and/or capacity to set up Disaster Risk Reduction measures before the disaster strikes. They respond after the disaster by diverting resources from other projects and relying on international donor agencies. But that is no more feasible due to donor fatigue and global recession. So, what is the answer for emerging markets like Pakistan??

What are the benefits of micro insurance?

Micro insurance, which is insurance targeted at people living below the poverty line, is an effective solution. It helps to set up an effective and transparent mechanism before the disaster hits. It is cheaper, faster and ensures sufficient liquidity at the time of a disaster, thus easing the burden on the public sector. It is more dignified than a grant. It offers protection against shocks such as illness, accidents, death, crop and livestock destruction.

Is it enough?

Micro insurance has its limitations. It is only one link in the complex value chain of Disaster Risk Reduction. Governments need to put in place national risk management strategies which combine a mixture of measures such as early warning systems, guidelines and standards for disaster resilient buildings and infrastructure and training and awareness raising among communities etc

Can it work?

There are many necessary pre-requisites for setting up a large scale micro-insurance scheme, such as effective public-private partnerships, mandatory participation, effective and efficient payment and delivery channels and the support of international re-insurers. For a country like Pakistan, there are challenges. For example the capacity of insurance companies to enter this sector is not yet sufficient. The population itself has a low level of understanding about how insurance works. There is also the problem of data, and how to identify benefactors and select effective aggregators.

However, there are solutions to all of these challenges. And, sharing the experiences of more than 70 countries participating in the conference reinforced my faith in the potential and resilience of human beings. The world has risen to the challenge. The increasing frequency and severity of natural disasters has left countries with no option but to prepare themselves before the next disaster strikes, because strike it will—when, only that is the question.


Nasreen is an Associate of the Chartered Insurance Institute of London. She has more than 18 years of Insurance experience and has the unique distinction of heading insurance companies in Pakistan and also being the Insurance regulator. She is currently Executive Advisor to, the EFU Group of Insurance companies, which is the market leader in the Life, non Life and Health insurance sectors in Pakistan.

CDKN is supporting the NDMA Pakistan to design its disaster risk insurance fund and strategy. Read more in CDKN Project Manager Kashmala Kakakhel’s article on the project.

Photo courtesy of IRIN photos @flickr creative commons.

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