Index based insurance as a tool for Disaster management ... - MicroSave

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tool for Disaster management. A study in. South and South East Asia. Sunil Bhat. MicroSave .... Fax: +91-522-4063773. Ne
Index based insurance as a tool for Disaster management A study in South and South East Asia

Sunil Bhat MicroSave November 2013

Study by MicroSave in collaboration with CDKN CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of MicroSave is strictly prohibited

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Microinsurance products •

Traditional crop insurance   

• • • •

Yield-based crop insurance or Multiple Peril Crop Insurance (MPCI) Damage-based indemnity insurance or Named Peril Crop Insurance Area-yield index insurance

Traditional disaster insurance policies such as policies against earthquakes, storms etc. Traditional livestock insurance Weather-based index insurance policies Livestock index insurance policies

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Index Insurance Product

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Traditional Insurance vs Index Insurance Traditional Insurance

Index Insurance

Assessment

Actual assessment

Proxy

Timeliness of payout

Slow

Faster

Financial sustainability

Unsustainable (historically)

Sustainable

Pricing

Non-actuarial

Actuarial

Cost

Cheaper

Expensive

Vintage

Longer

Relatively shorter

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Scenario in South and South East Asia

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India Started by Private Players, Government Schemes Are Now Dominant   



Started 2003 WBCIS is the most prominent scheme in India 14 states in Kharif 2011, 13 states in Rabi 2011-12; 35 different crops Public player AIC of India and 13 different private insurers

States without WBCIS

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Pakistan Donor Driven, Government is yet to Catch Up

   

Started 2012 Pilot by PPAF and IFAD In Soon Valley and Talagang Insurance companies: Alfalah and United Insurance

Index pilots Khushab and Chakwal districts

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Sri Lanka Entirely Donor Driven

   

Started 2008 Pilot by ILO, DID and SICL in 2008 In 2011, IFC’s Global Index Insurance Facility (GIIF) Insurance company: Sanasa Insurance Company Limited

Anuradhapura Polonnaruwa Kurunegala

Kegalle

Kaluthara

Galle

Badulla Ratnapura

Matara

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The Philippines Government and Donor Working Together  





Started 2011 Philippines Crop Insurance Corporation (PCIC) collaboration with ILO, World Bank and GIZ Insurance company: Public insurer Philippines Crop Insurance Corporation Private player MicroEnsure also offers index products

Isabela

Leyte (Tacloban) Ilo Ilo

Butuan

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Indonesia Dominance of Private Players

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No index product ACA Asuransi offers disaster products for dengue and earthquake MAIPARK and GlobalAgRisk planning to offer an earthquake based index product Failed product: PT Wahana Tata flood index insurance (GIZ and Munich Re)

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Trends in index insurance         

Started by Private players; taken over by Government Support from international donors agencies Sum insured = cost of cultivation or the size of the loan amount Premium = risk premium + administration cost + commissions Dependence on subsidy Distribution challenges Improving understanding levels of farmers is challenging Faster claim settlements Loanee versus non-loanee farmers

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Challenges faced by Index Products Weather infrastructure- basis risk Reinsurance support Subsidy dependence creates doubts on sustainability Kharif + Rabi: Contribution to premium

Premium (INR million)

  

14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Kharif Rabi Kharif Rabi Kharif Rabi Kharif Rabi Kharif Rabi 2007 2007-08 2008 2008-09 2009 2009-10 2010 2010-11 2011 2011-12

Farmer contribution

Central Government

State Government

Kharif Rabi 2012 2012-13

Gross premium

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Potential for scaling up index insurance        

Identification of the right parameter is essential for successful programme Governments should be part of the programme Ensure reinsurance before piloting. Investment in weather infrastructure is a must Capacity of local stakeholders should be increased Bancassurance channel should be put to use Client literacy and education must be a priority Create research and development capabilities

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