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PROJECT: Assessment of the effectiveness of micro disaster insurance in India

Project Reference: AAAS-0018c

The east coast of India is one of the most vulnerable regions to climate-induced natural hazards like cyclones, flooding and erosion because of changes in the sea level. Coasts and coastal communities have been bearing the brunt of various natural hazards, most of which are hydro-meteorological and geologic in nature, and which have been increasing in number and intensity over the recent past.

A severe cyclonic storm ‘Phailin’ made its landfall in Gopalpur in Ganjam district in Odisha on October 12, 2013; affecting more than 13 million people and killing approximately 23 due to the cyclone and an additional 23 due to flash flooding in the aftermath of the cyclone (UNEP Global Environment Alert Service, 2013). The evacuation of more than a million people in the states of Odisha and Andhra Pradesh in response to effective early warnings resulted in a much lower death toll than a catastrophic cyclone of similar strength that struck in 1999, leaving 10,000 people dead. However, several hundred thousands of homes were washed away when wind-driven tidal surges up to 3 meters destroyed the coastal belt. The storm brought additional rainfall to inland areas that have already borne the brunt of an overly active monsoon season. Many areas of the affected districts were inundated; houses, roads and embankments were damaged; and drinking water ponds were contaminated. Crops worth Rs. 2,400 crores were destroyed by the cyclone.

The efficient planning of preparedness activities before the cyclone hit is perhaps the greatest reason behind the minimal loss of life after the cyclone. However, the losses incurred by the state were huge.

For decades, the financing of disaster in developing countries such as India has relied on a reactive approach. Such ex-post funding approaches are usually not well coordinated and are often poorly targeted and insufficient. As the frequency and scope of losses due to major natural catastrophes, especially tropical cyclones, continues to increase, there is a growing need to explore other options for managing and transferring risks associated with climate change. One option to address this is through risk transfer, which are financial mechanisms formulated to reduce vulnerability disasters by employing structured instruments to spread risks in exchange for a premium. One of the most widely discussed is micro-insurance.

In 2004, based on the number of community consultations, AIDMI launched the Regional Risk Transfer Initiative (RRTI) with partners to promote disaster insurance for the poor as a means of effective risk management. The initiative resulted in the creation of the Afat Vimo – disaster insurance in Gujarati language – a micro insurance scheme that compensates policyholders for life and non-life losses in 19 types of disasters with national insurance companies. The scheme covered disaster-affected, low-income household at an annual premium that is approximately three days’ of a household’ income.

The Risk Transfer Initiative was tailored to regional realities and was replicated to disaster affected areas in India. The efforts were owned by local institutions in partnership with insurance companies and with technical support by AIDMI. Afat Vimo (Disaster Insurance) was replicated in Odisha and several insurance holders (165 as at 03.12.2013) were able to make claims post cyclone in Puri, Odisha as they had covered themselves under the policy to protect against loss and damage to their shelter, livelihood and household items.

The All India Disaster Mitigation Institute (AIDMI) with CDKN support carried out a rapid assessment in 2014 aimed at highlighting the importance of building up the financial resilience of vulnerable people through disaster microinsurance in Odisha. The findings of this rapid assessment validate the need to scale up and institutionalize disaster microinsurance into disaster risk planning and management. This new evidence helped to increase the understanding of targeted policy-makers and stakeholders on the opportunities and limitations of disaster insurance as a part of an integrated DRM strategy. Through the project many new stakeholders became aware of the potential of risk insurance, and a discussion has begun on the value of scaling up of disaster insurance.

The Summary Assessment Report and Briefing Note provides the complete facts and figures from the Odisha case.

A photo essay of the project and its findings provides a visual documentation of the work

Budget: GBP 20,000


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