Project name:
Evaluation of the Impact of Disaster Micro-insurance on the Insured

Description:
Following the United Nations International Year of Microcredit 2005, there is growing interest in microfinance solutions to help alleviate poverty in developing countries. Whereas using microcredit and, to a lesser extent, microinsurance to cover life and health risks is now widely established, the use of microinsurance to indemnify against losses caused by severe or catastrophic natural disaster is only just emerging. The aim of disaster microinsurance is to provide low-income households and businesses with easily accessible and affordable life and health insurance as well as insurance to cover the loss of small-scale assets, livestock, and crops in the event of a flood, typhoon, or other natural disaster. The viability of disaster insurance for poor households and businesses, however, remains tenuous, given that disaster losses can simultaneously affect whole communities and risk pools (so-called covariant risks). The disaster-risk-management community views microinsurance, if it proves viable, as part of a broader, integrated disaster-risk-management framework involving risk reduction, disaster preparedness, and risk transfer.

The experience with microinsurance schemes is too limited to allow a comprehensive evaluation of their viability; however, some insights on their potential benefits and limitations can be gained from recent experience. The ProVention Consortium is therefore collaborating with the International Institute of Applied Systems Analysis (IIASA) on a research initiative that aims to assess the benefits, limitations, and viability of microinsurance for disaster risk.

A first desk-top review (pdf) published in 2006 demonstrates the potential of disaster microinsurance programs as a means of protecting the poor against the consequences of natural disaster shocks, but also reveals significant challenges.

Microinsurance programs, which are already providing postdisaster liquidity to poor households, are helping to secure livelihoods and facilitate disaster recovery and reconstruction. Moreover, index-based schemes have demonstrated their value in improving the creditworthiness of farmers. Promoters claim (although there is too little experience for actual confirmation) that indexed insurance will contribute to breaking the disaster-induced poverty cycle by enabling productive investment. Yet, the long-term viability of these programs in the face of large, covariant losses and the overarching need to reduce the immediate human and economic toll of disasters is still to be determined. Reducing disaster-related poverty through microinsurance presents formidable challenges to local, national, and international communities.

Future work on microinsurance in collaboration with ProVention will focus on more in depth-assessments of the pros and cons of microinsurance for disaster risks and the scope for donor intervention, for which case studies are currently being identified in South Asia.

Funding agencies:
The ProVention Consortium

Duration:
January 2008 – December 2008

Partners:
All India Disaster Mitigation Institute (AIDMI)

IIASA Researchers:
Reinhard Mechler
Daniel Kull
Stefan Hochrainer

Responsible for this page: Jun Watabe
Last updated: 24 Feb 2011