FEATURE: Risk insurance to help Pakistan’s poorest deal with climate change
Syed Abbas Hussain examines how risk insurance for Pakistan’s poorest and most climate-vulnerable people has become an issue of increasing concern – and how a CDKN project is proposing some answers.
Climate change has resulted in changing weather patterns and an increasing frequency of extreme weather events world over. Developing countries have especially been affected by this phenomenon as they often lack the capacity and technical infrastructure to cope with the threat of climate change.
In the past decade, Pakistan has witnessed a surge in the incidence of natural disasters which have resulted in a large number of casualties and significant economic losses: As many as 30 million people were affected by the 2010 and 2011 floods which were followed by the destructive 2014 floods that continued the cycle of catastrophic damage.
While mitigation (reducing greenhouse gas emissions through efficient technology and renewable energy) can help in dealing with the root cause of climate change and adaptation, (adopting coping strategies to increase the resilience of affected groups) in reducing its impact, natural disasters can wield significant damage in spite of these strategies. Loss and damage is defined as the ‘residual’ impact of climate change which is caused in spite of both mitigation and adaptation.
Climate impacts: major blow and policy challenge to Pakistan
The onset of a natural disaster stands as a major challenge for policy-makers who have to undertake strategic initiatives to rehabilitate a large number of people, many of whom have lost their homes and means of economic livelihood. With both immediate and long term rehabilitation being resource intensive, natural disasters come as a sudden shock to the fragile economies of developing nations. In Pakistan, where agriculture accounts for 21 percent of the GDP, 45% of employment and 60% of exports, floods have caused a major blow to the economy.
In 2010, the economic losses incurred as a result of the floods were up to US$ 16 billion. The impact on individuals and households is equally pronounced. Bilal Ashiq, a resident of Southern Punjab underscored the impact the 2010 floods on the lives of people in his village and narrated an account of his friend who lost his business: “He (my friend) did not have anything left to go back to. The authorities provided help initially- gave him food and clothes- but that did not help him recover his business. Four years after the flood, my friend who once had his own business, and was richer than all of us, now looks for work every day, offering his services as a wage labour and earning a fraction of what he used to. No one will give him a loan because he cannot put up any collateral. We offer him help, but my own farm faces the threat of floods every year.”
The Asia-Pacific Network for Global Change Research (APN) funded a toolbox for assessing loss and damage at the household level, which was piloted in the flood-hit district of Rajanpur. The findings from the study painted an alarming picture; 50% of the population studied were unable to cope or adapt to the flood. The economic losses per household averaged to $8100 and non-economic ones to $885 per household.
Focus Group Discussions: with flood affected communities of Rajanpur and drought affected communities of Mirpur Khas.
Survey: of loss and damage from climate-related events, preventative measures effectiveness and impacts, coping measures and perceptions of local community members. Assessment of natural, financial, social, human and physical capital.
Interviews: with government officials to ground-truth preliminary findings.
The perception of the respondents about their lives was marked by despondency; they declared that the damage that had been afflicted on them was permanent and that they saw little chance of recovery. Moreover, mental health problems such as post-traumatic stress disorder and chronic depression were observed among the affected population. It must be noted that mental health problems further push a disaster affected population into a state of vulnerability as it reduces their coping ability.
Country impacts debated on a global stage
Given its intense and long term implications, the debate about loss and damage is increasingly gaining prominence in the international discourse on climate change. At the nineteenth Conference of Parties (COP19) of the United Nations Framework Convention on Climate Change (UNFCCC) held in Warsaw, Poland in December 2013, Parties agreed to set up the Warsaw International Mechanism (WIM) on Loss and Damage with an Executive Committee and three year mandate to report back at COP22 in December 2016 in Marrakech. In the Paris Climate talks in 2015, developing countries pushed for loss and damage issues to be introduced as a distinct component of climate action separate from mitigation and adaptation. They also demanded that an institutional mechanism and financial framework be charted out for that purpose. In Marrakech, a framework was agreed to provide the basis for the next five years of talks about loss and damage (see COP22 round up here).
Loss and damage has been known to court controversy owing to the fact that developing countries contribute less to the overall greenhouse gas emissions relative to developed countries, but still, have to bear the greater impact owing to a capacity deficit to cope with the disastrous impacts of climate change.
Natural disasters tend to expose the lack of preparedness of governments, who often following a natural disaster, scramble for funds and struggle to galvanise their administrative machinery to deal with the aftermath. Given the critical threat natural calamities pose to societies in the form of irreparable losses, an approach towards post disaster relief that goes beyond the conventional framework of fund allocation has to be adopted. Efforts have to be geared towards disaster preparedness and contingency planning.
Pakistan: low cost insurance to low income households
Contemporary management strategies are geared towards greater feasibility and sustainability for a more efficient flow of funds in economically volatile societies. The National Disaster Management Authority (NDMA) of Pakistan has devised a plan to provide low cost insurance to low income households so as to put in place an inclusive disaster risk reduction mechanism. The insurance could cover the key sources of the beneficiary’s sustenance; such as the death of the breadwinner, food security, shelter, livestock and crops.
The government of Pakistan has requested the Climate and Development Knowledge Network (CDKN) to support them in developing a National Disaster Insurance Framework. The framework is aimed at putting in place a credible institutional procedure fordistributing funds in a timely fashion following a disaster. To ensure the effective implementation of the proposed policy plan, a user-led approach was undertaken, characterised by a six month demand study initiated in five districts of Pakistan: Rawalpindi, Ziarat, Poonch, Charsadda and Tharparkar.
Learning lessons from international experience
The framework’s approach is based on international best practices in disaster risk insurance. The Caribbean Catastrophe Risk Insurance Facility (CCRIF) was the first of its kind, which came into existence as a regional disaster fund to limit the economic impact of extreme weather events by providing financial liquidity soon after a disaster. The insurance strategy in Pakistan, while drawing from ideas pertaining to CCRIF, has been tailor-made according to the geographical and socio-political context of Pakistan. The NDMA has expressed hope in the National Disaster Insurance Framework, as stated by its official, Ahmad Kamal: “Through the work with CDKN, we have just started moving towards introducing disaster risk insurance in Pakistan. The project has the potential to have an immense positive impact on the most vulnerable populations.”
Meanwhile, to widen its finance net and bolster donor support, the government of Pakistan has linked up with relevant stakeholders internationally. In that regard, it has signed a Memorandum of Understanding (MoU) with the Asian Development Bank to set up the Pakistan National Disaster Management Fund to boost the country’s emergency response and reconstruction capacity, and reduce its vulnerability to natural calamities. The fund will consist of a diverse set of sources and will enable donor alignment. Furthermore, an organised bureaucratic setup would allow the government to coordinate resources effectively. The ADB has approved a loan of $200 million to support this process.
In the context of poverty reduction, climate-related loss and damage is a crucial area as it can push both populations and countries into further debt and poverty. A streamlined, unified approach that integrates the efforts of different stakeholders in the realm of risk insurance would be conducive to an effective disaster response strategy – one that is geared towards limiting the economic impact of natural disasters on affected communities.