Page 16 - DDME "The Disaster Forum"

Developing a Micro-Insurance Model for Disaster Resilience in CARICOM States
SUBMITTED BY
Balfour Spence, PhD
Professor, Applied Disaster and Emergency Studies Department Brandon University Brandon Manitoba, Canada, R7A 6A9 Telephone: (204) 727-7386 Emailspenceb@brandonu.ca orbalfourspence@hotmail.com
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INTRODUCTION
Catastrophic risk insurance is rela@vely new in the disaster risk management landscape of CARICOM States, albeit that these states are located in the second most disaster-prone region of the world. Establishment of the Caribbean Catastrophic Risk Insurance Facility (CCRIF) as a non-profit en@ty in 2007, heralded the first mul@-country risk pool in the world and the first @me that an insurance instrument successfully developed parametric policies backed by both tradi@onal and capital markets. While the CCRIF has emerged as an effec@ve risk transfer model that has aSained global relevance, there is evidence that that comprehensive risk transfer for disaster resilience capacity-building in CARICOM States will require sectoral/micro-level engagements if benefits are to be reaped in a @mely manner and resilience at the micro-level enhanced.
This paper advocates a micro-insurance model for disaster resilience in CARICOM States as a strategy for mainstreaming disaster risk transfer at the sectoral/micro-level and thereby enhancing resilience capaci@es of the most vulnerable sectors in these states. Given recent extension of the CCRIF towards targeted sectoral coverage, this model can be u@lized as an extension of the CCRIF or a stand-alone strategy that can be configured and applied at individual country levels. Specifically, the model is aimed at engaging low-income households, small-scale farmers, low-capitalized fishers and micro-enterprises in a parametric micro-insurance solu@on that will not only foster a sense of personal responsibility for the building of resilience among these groups, but will also encourage mi@ga@on prac@ces. The model is premised on partnership among the insured sectors, suppor@ng infrastructure for the insured sectors, private insurance en@@es, na@onal governments, private sector, the CCRIF and donor organiza@ons.
Key ConsideraTons for Micro-level Disaster Risk Transfer (Micro-insurance)in CARICOM States
The CARICOM region experiences high levels of vulnerability to the impact of a plethora of natural and technologic al hazards and over the past two decades, this vulnerability has been exacerbated by global-warming induced clima@c change/variability. Despite high levels of vulnerability, catastrophic risk transfer is in its infancy at the macro-level and virtually absent from micro/sectoral levels. Establishment of the CCRIF in 2007 represents a milestone in in the use of disaster risk transfer mechanisms as a strategy for DRR and to expedite the recovery process in the aOermath of hazard impacts. As a mutual insurance facility, the CCRIF enables par@cipa@ng countries to pool their risk into a single and more diversified joint reserve mechanism in order to provide its members with access to affordable and effec@ve disaster risk insurance (GFDRR, 2011). While micro-level coverage is implicit in the CCRIF, the Macro-level structure of the mechanism does not always facilitate filter to lower income sectors and recovery payouts tend to priori@ze macro-level infrastructure (Spence, 2016).
Micro-insurance is intended to protect low-income economic sectors and families against the impact of specific hazards in exchange for payment of regular premiums that is propor@onate to the likelihood and cost of the risk (Arnold, 2008). As such, the benefits of micro-insurance in disaster resilience capacity-building in general and among the poor in par@cular, are several. Primarily, it is an effec@ve mechanism for breaking the cycle of poverty by allowing low-income household access to post-disaster liquidity, thereby ensuring livelihood sustainability and con@nuity. In addi@on, micro-insurance helps to promote more produc@ve investment among micro- enterprises because insurance improves the credit worthiness of clients. It also allows micro-enterprises to invest in hazard-impact reduc@on measures, especially if rewards for risk reducing behavior are built into the micro-insurance porkolio.
While there is consensus on the poten@al benefits of micro-insurance as a disaster resilience interven@on, development and implementa@on of such mechanisms can be stymied by several factors such as:
i. Although the volume of poten@al subscribers to micro-insurance schemes is generally large, actual subscrip@on can be low even at low levels of premium costs. The main reason for this is that target clientele usually operate below the poverty line and as such, even low levels of premiums are unaffordable.