Page 20 - DDME "The Disaster Forum"
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associa@on can be engaged as focal points for payment of premiums and compensa@ons. Such organiza@ons will already have the network and infrastructures for individual contact, and as such, would not incur addi@onal cost for providing micro-insurance administra@ve support to clients. Where such organiza@ons are non-existent, their establishment is recommended as a prerequisite for implementa@on of micro-insurance solu@ons. In instances where recovery cost exceeds insurance compensa@ons, catastrophic assistants from donor agencies can be channeled through these support organiza@ons.
Relevant Private Sector Agencies: - Private sector organiza@ons, whose businesses are linked to livelihood ac@vi@es that are targeted for micro-insurance solu@ons, stand to benefit from con@nuity associated with risk transfer mechanisms. For instance, business con@nuity of an agro-processing firm is hinged on the capacity of client farmers to maintain supply chains in the aOermath of hazard impact. In light of this rela@onship, contribu@ons to subsidiza@on of premiums for insured groups can be explored at na@onal level in CARICOM States.
Insured groups: The targeted insured groups are an integral part of the partnership in micro-insurance solu@ons for disaster risk reduc@on. Solvency and sustainability of such interven@ons is hinged on fulfillment of obliga@ons by insured individuals. Given that viability of the solu@on is dependent on individual fulfillment of obliga@ons, peer pressure is crucial to sustainability.
Viability of solu@ons is premised on insured individuals being registered with an associa@on or other forms of support organiza@ons. This is necessary for reduc@on in cost of premiums as exis@ng infrastructure of associa@ons can be used to channel premiums to insurance provides and distributes compensa@ons from providers.
Individuals within the insured groups will pay a set premium to an insurance provider through the infrastructure of a groups support organiza@on and set compensa@ons will be likewise channelled. Since both premium and compensa@ons are set, individuals insured will have an incen@ve to mi@gate impact cost. If impact cost is less than compensa@on, the individual accrues posi@ve benefits which can be saved towards situa@ons where impact cost exceeds compensa@on.
Types of Hazard to be Insured
It is recognized that CARICOM States are located in a mul@-hazard environment and as such mul@-hazard coverage is desirable. However, it is being proposed that for simplicity of the design framework, the ini@al phase should focus on hydro-meteorological hazards – hurricanes (wind), floods, droughts, ground seas (sea swells), but individual states can determine their preferred scope of coverage. Conduct of feasibility studies will beSer refine the scope of coverage.
Livelihood Sectors to be Targeted
Micro-insurance solu@ons are intended for individuals who cannot afford tradi@onal indemnity-based insurance i.e. the poor. Within CARICOM States there are iden@fiable livelihood sectors that are readily associated with lowest incomes – small-scale farmers, near-shore fishers, micro-enterprises and low-income households as defined by the poverty lines of individual states. In order to par@cipate in micro-insurance solu@ons, individuals within these livelihood sectors are required to be registered in support agencies for these sectors. Where such agencies are non- existent, their forma@on/establishment would be a prerequisite for par@cipa@on as within the context of the model they play a cri@cal role in administra@on of premiums and compensa@ons to/from Providers.
Type of Coverage
The landscape that informs poten@al demand for micro-insurance products in CARICOM States is complex. As such, a simplified product design is advocated in the model.
Tradi@onally, insurance coverage has been indemnity-based. That is, insurers pay compensa@on based on losses to household, crops and so on. While such schemes allow for discriminatory compensa@on, they require extensive networks of claims adjusters who assess individual losses following an event. More recently, index-based schemes for slow onset events such as hurricanes and floods have emerged and these are especially relevant in the design of micro-insurance solu@ons. Index-based insurance schemes are dis@nguished from indemnity-based schemes in that compensa@on contracts against a physical trigger (parametric insurance) such as a specific quan@ty of rainfall at a specific loca@on or region or a hurricane of a specified magnitude. In the case of weather-related deriva@ves, the insured receives a pay-out once that trigger is reached, irrespec@ve of loss. Since payouts are not coupled with individual loss experience, the insured have an incen@ve to undertake disaster loss reduc@on measures since the possibility exists that if they can keep actual loss to a minimum, their actual benefits from payouts could exceed actual loss. Because the claim is a prefixed amount per unit of protec@on, transac@on is simplified and related costs lowered, making index-based insurance aSrac@ve to micro-insurance-demand environments.
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