Fatou Assah Senior Financial Sector specialist The World Bank April 2012 1
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Disaster Risk Management Framework
Disaster Risk Financing & Insurance Program Mainstream disaster risk financing and insurance in national DRM strategies Knowledge management and capacity building Product Development Technical assistance and operations Partnerships World Bank Group: FPD, SDN/GFDRR, Treasury, regional VPUs Academic partners: Wharton School, NTU Singapore Practitioners: Willis Research Network, Geneva Association, brokers, reinsurers Regional development banks: IADB, ADB
World Bank DRFI products and services Low Majo r Insurance Linked Securities Catastrophe Bond (CAT Bond) Recently launched a multi country, multi peril catastrophe bond platform to pool and transfer risks to the capital markets. Mexico has issued a USD 290 million bond to protect against earthquake and hurricane risk. Probab bility of Even nt Sev verity of Imp pact Weather Insurance Insurance Pools Malawi Drought Hedge Caribbean Catastrophe Risk Insurance Facility (CCRIF) Insurance against weather related losses, based on an index Global Index Insurance Facility (GIIF) WBG provided Malawi its first ever weather risk management contract to protect against the risk of severe drought Parametric insurance against natural disasters WBG Assisted 16 Caribbean Countries in establishing CCRIF against hurricanes and earthquakes Risk Tran nsfer High Minor Contingent Loans Catastrophe Risk Deferred Drawdown Option (CAT DDO) Provides immediate liquidity following a natural disaster, in the form of a contingent loan with associated risk framework reforms Risk Re etention
A few WB Disaster Risk Financing & Insurance Projects Mongolia Index based livestock insurance Mexico Catastrophe bond Guatemala Caribbean Regional insurance pool Contingent creditcost Rica Public Assets Cat Risk Transfer Morocco Cat insurance law Africa Pan African drought risk pool Malawi Turkey Earthquake insurance pool Macro and micro India Agricultural l insurance TA ASEAN Disaster Risk Financing & Insurance Review Indonesia National disaster risk financing strategy schemes Pacific Islands Pacific Catastrophe Risk Assessment and Financing Initiative
Sovereign Disaster Risk Financing Sovereign Disaster Risk Financing Overview: Financial i strategies t to increase the financial response capacity of governments in the aftermath th of natural disasters, while protecting their long term fiscal balances Primary beneficiaries: National & local governments Product/Service lines: Technical assistance (TA) in ex ante budget planning for natural disasters Contingent financing (DPL with Cat DDO) Sovereign catastrophe insurance pools (e.g., CCRIF) Insurance linked securities (e.g., g, cat bonds, weather derivatives)
Pacific Disaster Risk Financing and Insurance Initiative Partnership with the Ministry of Finance, Government of Japan Pacific Disaster Risk Financing MDTF Builds on the Pacific Catastrophe Risk Assessment and Financing Initiative Pacific Risk Information System Development objective of the program Promote disaster risk financing and insurance solutions, as part of the broader DRM agenda, in the Pacific islands Activities Technical assistance and capacity building on budget planning and DRFI Pacific disaster risk insurance market development Pacific disaster risk insurance pilot program for governments
Agricultural Insurance Agricultura l Insurance Overview: Develop cost effective, sustainable and affordable agricultural insurance programs for farmers, herders, and agricultural financing institutions Primary beneficiaries: Farmers, herders, rural finance institutions, cooperatives Product/Service lines: TA to develop (traditional and index based) agricultural insurance programs or to improve existing programs TA to design and implement agricultural insurance pools (e.g., Mongolia index based livestock insurance pool)
India s National Agricultural linsurance Scheme (NAIS) World Bank assistance in modification of the NAIS the largest crop insurance scheme in the world The National Agricultural Insurance Scheme has been in place since 1999 and uses an area yield based index approach The Government requested assistance from the World Bank in strengthening the scheme to reduce delays in claims payments and to increase take up In 2010 the government approved a plan to move to a modified NAIS scheme e on a pilot basis, reflecting many of the recommendations from the World Bank s technical assistance One key modification is the introduction of a weather index insurance product to complement the area yield based cover Use of mobile phone technology to improve data quality and expedite data transfer of crop cutting experiments (CCEs) [2011 WB Innovation Award]
Index based livestock insurance in Mongolia A PPP to protect herders In 2005, the World Bank helped the government of Mongolia establish a livestock insurance scheme through h which h private insurers offer coverage to herders based on a livestock mortality rate index; A public private partnership was established to: o Pool the risk underwritten by insurers; o Isolate the risk to protect the broader insurance industry from financial contagion due to extreme livestock mortality; o Allow the government to act as reinsurer and to facilitate access to international reinsurance markets. The scheme has proved successful, and has scaled up to 15 provinces in 2011 from the original three piloted
Global Index InsuranceFacility (GIIF) Overview Technical Partnerships -Underwriting capacity -Knowledge transfer -Equity investments to support capitalization of re/insurance companies Global Index Insurance Facility (GIIF) GIIF Trust Fund Funding for Development in the 3 key areas Partial Premium Support Local Capacity Building Regulatory and Policy reforms GIIF Trust Fund An open, multi-donor funded trust fund supported by an EC grant of Euro 24.5 million. Other donors include the Dutch and $2 million from Japan MIF. GIIF is a risk mitigation program jointly conceived by the World Bank and the Donors to address the scarcity of affordable insurance protection against weather and natural disasters in developing countries. Launched operationally in December 2009 GIIF is jointly implemented by IFC and IBRD. Implementation of the Program is on course with 6 implementation projects approved, a technical partnership agreed, and policy & regulatory projects also underway 12
GIIF A comprehensive risk mitigation program created to address the scarcity of affordable agricultural insurance protection in developing countries GIIF s objective is to promote the development of effective and sustainable markets for index based agricultural linsurance, so as to foster sustainable development in the agricultural lsector. WB leads the regulatory and policy agenda of GIIF, assisting governments in the promotion of index based insurance, working at the regional level with regulators (CIMA) and national agriculture insurance companies Dominican Republic Senegal West Africa (14 countries) Uruguay Argenti na Nigeriai Pacific Island Countries
Snapshot of sub project results in ACP 1. The Syngenta Foundation for Sustainable Agriculture and UAP Insurance in Kenya: 21,000 farmers insured, through a successfully partnership between the project, Agriculture input shops and an MFI. The project has successfully deployed an innovative mobile platform, for product distribution and administration. 2. The International Livestock Research Institute in Kenya: 2,600 contracts t have been issued, 20,000000 livestock units insured against drought in northern Kenya. 3. MicroEnsure in Rwanda: 935 farmers insured during the pilot season, 88 MFI and banking personnel trained on index insurance in Rwanda. 4. PlaNet Guarantee 7 countries in Francophone West Africa: 3 product pilots launched across 2 countries, regional index insurance hub for West Africa established in Dakar, 679 farmers insured under the initial pilots. 5. Guy Carpenter in Mozambique: Data collection finalized, product modeling underway, workshop and product launch planning for 2012 has commenced. 14
In October 2011, the ILRI Livestock Insurance program, to which GIIF is providing premium support, made its first indemnity payments to drought afflicted livestock herders in Northern Kenya The project has insured 2,600 households and 20,000 livestock head to date The payouts hugely improve awareness and trust in the product 15
The ILRI project and the Syngenta/UAP insurance projects have both successfully deployed mobile technology platforms for the administration of index insurance premiums and indemnities The ILRI project uses a point of sales system developed by Equity Bank and mobile scanners provided by UAP insurance The Kilimo Salama product continues to be successfully sold via a mobile platform developed by the project together with mobile operator Safricom The project also developed a Farmer Helpline which is integrated through a Safaricom call center, to provide agric information and information about the insurance to farmers 16
Lessons learnt on first generation weather index insurance (Malawi, Mongolia, China) (1) Weather index insurance for small farmers in developing countries is still new: Initial results of pilots have been mixed (often low voluntary demand/up take) Sustainability and scalability are not yet proven. Weather index insurance is not a panacea: Can only enhance existing agricultural supply chains and businesses, not create them It can help support expansion in rural finance and agriculture It must go hand in hand with ih other investments in extension services, irrigation, i i strengthening of input and output markets, other financial services and products etc. No one size fits all agricultural insurance products: There is not only one suitable crop insurance product for all situations Indemnity based or index based products must be fitted to local circumstances Weather index insurance is one risk transfer product to be considered according to the crop type, key peril exposure, data availability, farmer size, delivery channels, loss adjustment needs.
Lessons learnt on first generation weather index insurance (2) Sustainability and scalability will not be achieved unless operational hurdles can be overcome: Robust product delivery channels to farmers, linkages to finance or supply chain with additional farmer products and services ( Bundling ) Local ownership through capacity building and technology transfer for all actors Strong local partners and incentives Just as important for scalability (if not more) than technical hurdles: Investment in data and weather infrastructure Investment in training and capacity building for farmers and insurance companies Synthesizing best practices for contract design, insurance and reinsurance Favourable regulatory framework Meso and macro level applications of WII merit greater attention: Meso level coverage as a means of enhancing famers access to rural finance (through banks and input suppliers/pre financiers) Macro level coverage for governments as a means of food security, and ex ante weather induced disaster risk financing.
GIIF Early Lessons in Implementation Key factors for developing index insurance 1. Sufficient quality and quantity of historical weather data and adequate infrastructure 2. Adequate capacity building for local institutions to develop the needed technical skills to analyze risks and Challenges in moving forward with index insurance 1. Availability and quality of weather data and weather measuring infrastructure 2. Technical capacity of local institutions to develop index insurance products 3. Ability to raise awareness amongst beneficiaries (e.g. farmers, rural households, etc.) develop, price and distribute appropriate and affordable insurance products 4. Distribution channels to reach beneficiaries in a cost efficient manner 3. Awareness raising and training for 5. Cost of insurance and the ability and beneficiaries i i as well as product willingness to pay for insurance premiums marketing campaigns 6. Climate change and uncertainty about 4. Best if insurance is offered as part of weather events wider package of financial services 5. Enabling legal and regulatory environment for index insurance products 19
Disaster Microinsurance Disaster Microinsurance Overview: Facilitate access to disaster insurance products to protect the livelihood of the poor against natural disasters and promote DRR in conjunction with social programs Pi Primary beneficiaries: i i Low income populations Product/Service lines: TA to develop disaster insurance products and programs appropriate for low income populations
Property Catastroph e Risk Insurance Property Catastrophe Risk Insurance Overview: Develop competitive and sustainable catastrophe insurance markets and increase property catastrophe insurance penetration Primary beneficiaries: Households, small and medium enterprises; national governments Product/Service lines: TA to promote property catastrophe insurance of public dwellings TA to promote property catastrophe insurance of private dwellings TA to establish national (regional) insurance or reinsurance pools to facilitate development of domestic (regional) property catastrophe insurance markets
THANK YOU 22