Hazard Micro-insurance

Needs Address

Disaster relief

Adaptation effects

Enhances economic resilience to climatic disasters

Overview and Features

Micro-insurance enables risk transfer through pooling the risks and resources of groups. Micro-insurance is offered by governments and corporations that finance the cost of disasters. The insurance is paid based on the severity of the disaster event (index-based insurance) or the social or environmental impact incurred. Micro-insurance can cover multiple types of disaster, climate events and multiple livelihoods.

Cost

• Capital costs of pay-outs etc.
• E.g. AfatVimo insurance in India is available for an annual premium of less than USD 5 (a four-day wage)

Energy source

Human resources

Ease of maintenance

Continuous maintenance and review of schemes, terms and conditions are needed

Technology performance

Though still in the pilot phase in some locations, Insurance schemes have now evolved into an effective means of reducing vulnerability to climate related events, as well as other disasters 

Considerations

• Knowledge and experience of insurance business, regulatory system. Etc.
• Disasters lead to increased insurance premiums, and therefore long-term use of the technology by poor households can be limited

Co-benefit, suitability for developing countries

• Insurance programs can also contribute to the development of the national economy
• Poorer communities who cannot afford insurance premiums need external support from non-governmental and governmental organisations in the form of subsidies and cost sharing
• In situations where the costs of insurance would be prohibitively expensive, for example, the Pacific Islands, it may be better for countries in similar positions to pool the risks

Information Resources

Advanced Centre for Enabling Disaster Risk Reduction (2007). The Role of Microfinance and Micro insurance in Disaster Management. Research Brief 2, Tamil Nadu, India.

Linnerooth-Bayer, J. Hochrainer-Stigler, R. Mechler, R. 2012. Mechanisms for financing the costs of disasters. Report produced for the Government Office of Science, Foresight project ‘Reducing Risks of Future Disasters: Priorities for Decision Makers’. Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/287474/12-1308-mechanisms-financing-costs-of-disasters.pdf [24 December 2014]

PCRAFI, 2014.  The Pacific Disaster Risk Financing and Insurance Program. Available at: https://www.gfdrr.org/sites/gfdrr/files/publication/PCRAFI_Program%20Pager_FINAL%20VERSION.pdf [20 March 2015]

The World Bank, 2012. Improving the Assessment of Disaster Risks to Strengthen Financial Resilience. Chapter 12. Available at: http://www.gfdrr.org/sites/gfdrr.org/files/Chapter_12-Republic_of_Korea-Strengthening_Disaster_Risk_Assessments_to_Build_Resilience-to_Natural_Disasters.pdf [20 March 2015]

UNESCAP, 2013. Building Resilience to Natural Disasters and Major Economic Crises. Available at: http://www.unescap.org/sites/default/files/ThemeStudy2013-full2.pdf [24 December 2014]