INSURING THE POOR AGAINST NATURAL DISASTERS INNOVATIVE SOLUTIONS

Transcription

1 INSURING THE POOR AGAINST NATURAL DISASTERS INNOVATIVE SOLUTIONS SESSION 1: MICROINSURANCE PRODUCT INNOVATION Microinsurance Marketplace in Indonesia Conference Shangri-La Hotel, JAKARTA Vijayasekar Kalavakonda Senior Financial Sector Specialist Finance & Markets Global Practice The World Bank Group

2 Asia-Pacific is the world s most disaster prone region accounting (in 2015) for 45 percent of World s Natural Disasters <20 percent of insured losses, and >41 percent of economic losses 2015 FACT SNAPSHOT ASIA-PACIFIC NATURAL DISASTERS IN 2015 Source: UNESCAP Report (2015)

3 Insured losses is significantly low compared to expected losses due to natural disasters EXPECTED LOSSES PER ANNUM (% OF GDP) UNINSURED LOSS (% OF TOTAL LOSS AND AVERAGE UNINSURED LOSS PER NATURAL CATASTROPHE , $BN) Source: LLOYD S GLOBAL UNDERINSURANCE REPORT (2012)

4 1. World Bank support to Agriculture Insurance While agricultural insurance can bring large benefits to vulnerable rural households, the market is still under-developed particularly in low-income countries Agriculture is an uncertain business, and improvements in risk mitigation, transfer or coping can bring large benefits to vulnerable rural households: Although it is not a solution to every agricultural risk, agricultural insurance can be a powerful solution as part of an integrated agricultural risk management strategy It can help prevent vulnerable rural households from falling into deep poverty following a natural disaster, and also improve their access to agricultural credit Globally, the market for agricultural insurance is still under-developed, particularly in lowincome countries: In 2010, agricultural insurance penetration ranged from 1.99% of GDP in high-income countries to as low as 0.01% in low-income countries, compared to 3.15% and 0.69% respectively for non-life insurance Source: Mahul and Stutley (2010) 3

5 Similarly, insurance against Earthquake events in Indonesia can bring significant benefits. Over the past 100 years, there were 96 major earthquakes, causing around 300,000 fatalities. This is almost 1 major earthquake every year. Economic losses caused by the recent 3 major earthquakes was USD 10 billion. Around 133 million people, live in or near high risk earthquake zones.

6 Main barriers/challenges to develop insurance markets against natural disasters/agriculture insurance for the Poor includes 1. High level of informality / unorganized sector challenges in targeting/reach increased/high distribution/transaction cost 2. Income levels and volatility in incomes 3. Demand Supply mismatch in product features/needs Example Weather Index-Based Insurance vs. Indemnity Based Product 4. Usual suspects a) lack of awareness/financial illiteracy b) documentation/processes drudgery c) claims settlement & rejection rates

7 S-curve demonstrates the empirical relationship between disposable income and insurance penetration A minimum GDP per capita of $5,000 appears to be the magic number at which insurance take-up really picks up, as this reflects the growth of an economy's middle class For low income countries elasticity between insurance & GDP is around one insurance market growth is at the same pace as GDP Portfolio-based Insurance is one solution for such markets Publicly funded & social insurance programs are options Source: insurancelinked.com/the-s-curve/

8 VIDEO AGBBI Bahasa Indonesia: English:

9 RECAP EARTHQUAKE INDEX INSURANCE PRODUCT What is Earthquake Index Insurance? Payout is triggered by an index in the case of Earthquakes, the magnitude and intensity, i.e. magnitude 6 and up would trigger a payout Benefits: no loss assessment required, payout amount pre-determined based on EQ magnitude/intensity announced by the Met Dept, bank location, and amount of coverage purchased What does the Earthquake Index Insurance product cover? Portion of loan portfolio likely to be affected (calculated based on analysis of historical bank loan portfolio data) Why would banks be interested in this product? Helps manage the liquidity shortage/crisis after natural disaster (earthquake) Who pays the premium? Banks to the insurance company How much is the premium? Depends on bank location, size, and desired level of coverage

10 BENEFITS OF EQII DEVELOPMENTAL IMPACTS For Banks: Enables continued lending after an event when the community needs it the most Access to finance: frees up emergency capital reserves to expand lending Can spur growth and profitability of MFI Allows banks to manage risks better For Insurance Companies: Innovative and new product, not offered anywhere else New opportunity for expanding business Vast potential client base Global reinsurance very interested in this market

11 EQII TARGET MARKET IN INDONESIA BPR (Bank Pengkreditan Rakyat) - Rural Banks BPRs are only allowed to operate at the province where they are registered As per May 2015 there are 1,643 BPRs registered in Indonesia with total loan portfolio reaching 7 billion USD BPD (Bank Pembangunan Daerah) - Regional Banks There is one regional bank per province Owned by provincial government Other Banks, that do not have opportunities for diversifying risk and/or have concentrated geographic presence

12 INDONESIA EQII PROJECT STAKEHOLDERS Financial Services Regulator International reinsurers Market Stimulation Data gathering Capacity building Loan portfolio Loan portfolio Loan portfolio TA in Product Design Market stimulation MFI MFI MFI Primary Insurance companies Portion Covered by Insurance

13 TERIMA KASIH