Page 17 - DDME "The Disaster Forum"

ii. Where micro-insurance products are managed by tradi@onal insurance facili@es there is a tendency to emphasize the characteris@cs of the product rather than its benefits. This leaves target subscribers with a paucity of informa@on on how the micro-insurance product can facilitate livelihood con@nuity and sustainability in the aOermath of a catastrophic event. In instances where micro-insurance products are administered by humanitarian agencies they oOen lack the resource to mount public awareness campaigns.
iii. In the absence of effec@ve public awareness on micro-insurance benefits, insured individuals and groups oOen have inflated expecta@ons of compensa@on in rela@on to their premium. When such expecta@ons are not fulfilled dissa@sfac@on and distrust of micro-insurance schemes result.
iv. In light of the preponderance of poor vulnerable groups that could benefit from micro-insurance interven@ons in developing states like those in CARICOM, there is a prevailing logic that these groups represent a significant pool of unmet demand for micro-insurance. However, this logic is poten@ally flawed in assuming that the need for micro-insurance solu@ons to reduce disaster risk necessarily translates into demand for such products. Other factors such as affordability and level of awareness factor significantly into the demand for micro- insurance products (Spence, 2016).
Viability ConsideraTons for Micro-insurance SoluTon in CARICOM States
Viability considera@ons are cri@cal to the effec@ve design of micro-insurance solu@ons for disaster risk reduc@on in general and in CARICOM States in par@cular9Spence, 2016). Viability of micro-insurance solu@ons has both social and spa@al implica@ons but four overarching considera@ons are per@nent to CARICOM States:
I. There are two per@nent ques@ons in this regard. First, can/will a micro-insurance interven@on contribute to sustainable disaster resilience by reducing vulnerability? And secondly, can such an interven@on promote preven@ve/mi@ga@on measures that will influence immediate and future disaster losses?
It is essen@al that micro-insurance solu@ons promote cost effec@ve measures for risk reduc@on and building resilience while at the same @me recognizing that in the absence of incen@ves to invest in addi@onal preven@ve/mi@ga@on measures, disaster insurance can impede aggregate loss reduc@on because, in an@cipa@on of post disaster compensa@on, insured persons may not take precau@ons that are necessary to reduce their risk exposure (Mechler et al, 2006).
II. The hazard profile of CARICOM States results in poten@ally high exposure to covariant losses i.e. losses that stem from the impact of a high magnitude hazard on a large propor@on of the insured popula@on at the same @me. It is difficult to essure financial robustness of micro-insurance interven@ons that cover covariant losses because such losses present the insurer with the possibility of large pay-outs and even insolvency for high impact events. The issue of solvency of a micro-insurance solu@on for CARICOM States is therefore crucial to sustainable risk reduc@on(Spence, 2013).
III. Micro-insurance solu@ons are designed to afford access/coverage for people who normally cannot afford premiums for tradi@onal coverage. Affordability of premiums is therefore a key considera@on in micro- insurance product-design. Insurance costs are normally incurred from two major components - payments of claims which generally accounts for about 55 percent of cost and transac@on and capital/reinsurance cost, accoun@ng for 45 percent (Abels & Bullens, 2005). The ques@on therefore is how can covariant disaster insurance that typifies the risk profile of all CARICOM States, be offered at an affordable price to target groups? Possible op@ons include:
• Lowering of transac@on costs by offering simple products to client groups (such as a fishing/farming associa@on), relying on group pressure for @mely payments, enlis@ng the services of non-profit organiza@ons that do not charge high commissions, and stream-lining through integra@on with exis@ng infrastructure. Index-based (parametric) mechanisms in which pay-outs are triggered by a quan@ta@ve index can be an effec@ve affordability tool owing to low transac@on cost (Spence, 2013).
• A second op@on in the provision of affordable micro-insurance for disaster risk reduc@on can involve provision of capital reserves for reinsurance through interven@on of na@onal government or interna@onal
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