Syed Muhammad Abubakar of CDKN Asia, highlights CDKN's role in supporting Pakistan's National Disaster Management Authority in developing a risk transfer mechanism. This will eventually contribute to development of National Disaster Insurance Framework in order to help the vulnerable communities better manage natural hazards. 

Over the past three decades, Pakistan has been the victim of extreme weather events such as floods, earthquakes, cyclones and droughts etc. The intensity and frequency of natural disasters has increased over time, affecting communities living in vulnerable areas the most.

Pakistan’s vulnerability to climate change is further testified by German Watch, a German think tank, according to which Pakistan is ranked number five in the list of top ten countries most affected by climate change. In its annual Global Climate Risk Index 2016 , it was highlighted that Pakistan lost over US $ 2 Billion, equivalent to 0.25 per cent of Gross Domestic Product (GDP). However, taking a look at its previous report, which showed the most climate affected countries in 2010, Pakistan was ranked number one, losing more than US $ 25 Billion, which was equivalent to over five per cent of its GDP. The losses incurred in 2010 due to floods were greater than the cost of building Bhasha Dam.

Considering the damages caused by natural disasters, it’s imperative that the Government of Pakistan taps into all possible resources to help vulnerable communities deal with the issue and minimize losses.

Many affected communities face not only immediate losses, but also bear long-term consequences, which undermine their welfare

After the 2010 floods, the Government of Pakistan began working on looking for a form of disaster insurance that could help address the needs of communities vulnerable to and affected by natural disasters. It came up with an idea to establish a National Disaster Insurance Fund to help the vulnerable communities of Pakistan cope with natural disasters.

It’s important to note that globally there are many national disaster funds in the world, and insurance approaches designed to reach the most vulnerable communities. However, there is no such fund in Pakistan, which raises the need to establish one, in order to timely support the affected communities when a disaster strikes.

The aim of a National Disaster Insurance Fund could be threefold: to be in line with the National Disaster Management Authority’s (NDMA) objectives; to comply  with the needs of the marginalized communities; and to be financially viable and sustainable.

Therefore, the NDMA has requested the Climate and Development Knowledge Network (CDKN) to support its cause by developing a risk transfer mechanism. The National Disaster Insurance Framework would help to establish an effective and transparent mechanism with streamlined distribution channels and adequate funds, before any calamity strikes. This mechanism can ensure that the money reaches the beneficiaries in the shortest possible time.

While significant efforts have been made to develop hazard monitoring networks and consolidate hazard data from different sources, the resulting risk assessment efforts have mostly focused on identifying hazards and consequences, while failing to assess the relative significance of risks.

However, there are some challenges that the fund faces, which include: A highly vulnerable population i.e. approximately 100 million; little purchasing power of the chronic poor; high population growth rate indicating that more people will become vulnerable in coming years; poor economy constraining the allocation of sufficient resources for the fund; high inflation rate; communities’ vulnerability to natural disasters; lack of community involvement, perceiving the idea as a ’Western’ initiative and gender gap.

The project proposes a draft framework, which offers various possible options for the fund. With the support of various public sector entities, including National Insurance Company Limited (NICL), Pakistan Reinsurance Company Limited (PRCL) and the Insurance Regulator and Securities and Exchange Commission of Pakistan (SECP), the fund can be transformed into a reality.

The National Disaster Insurance Fund aims to provide disaster insurance to the chronic and transitory poor, thereby promoting their resilience by increasing their response preparedness, so that they quickly recover from the damage caused by natural disasters.

According to Bilal Khalid, Focal Person, CDKN Pakistan Country Programme at LEAD Pakistan, ‘The NDMA’s plan to design the Disaster Risk Insurance Framework aims to provide low-income households easily accessible and affordable insurance. In this regard, CDKN will assist the NDMA by developing a risk transfer mechanism to protect the lower income population group against extreme weather events that are expected to increase owing to climatic impacts. A National Disaster Insurance Framework would be to set up an effective and transparent mechanism with streamlined distribution channels and adequate funds, to be in place before the disaster strikes, ensuring that the money reaches the beneficiaries in the shortest possible time.’

The National Disaster Insurance Fund should be designed in a way that promotes the culture of risk reduction, by providing incentives, and linking it to certain risk reduction measures undertaken by the communities. Since the lower and middle income countries like Pakistan, lack effective disaster risk reduction measures, therefore, the international insurers develop an over-cautious approach and tend to price the risk higher than they normally do for the developed markets. The National Disaster Insurance Fund would be able to address this issue. However, in order to effectively do this, it should aim to build up a 10 year road map for annually increasing its reserves.

A certain percentage can be paid directly to the local authorities for reducing the risk exposure and resilience building

When it comes to disbursing capital after a disaster, it should be done in a timely way and should be linked with risk reduction and preventive activities. Applying a combination of insurance measures with risk reduction, early warning, education, infrastructure strengthening, and land-use regulations, can greatly reduce the immediate losses and long-term development setbacks from disasters.

The initiative by NDMA to establish a National Disaster Insurance Fund can be a breakthrough to help the most vulnerable communities better manage natural hazards. Should Pakistan move forward in this endeavor, it will of course face challenges, but hopefully deal with these effectively. This will eventually provide leadership and innovative vision in addressing some of the most acute, and often invisible, challenges of protecting vulnerable people from the risks of natural hazards.

Picture Courtesy: Abbas Mushtaq, CDKN Asia