Mitigating Economic Impacts of Disaster by Combining Sovereign Risk Management Strategies with Microinsurance
By Ani Vallabhaneni
Today, in our second class session, we will be discussing the issue of Risk Management. In particular, we will be focusing on a couple of topics that Lant Pritchett brought up at our last session: decreasing vulnerability and increasing resilience of individuals to economic shocks. His research indicates that these two factors play a crucial role in determining whether people move up or down the poverty ladder.
In a recent piece on Marketplace discussing Rebuilding Haiti (audio), Kai Ryssdal talks about the Caribbean Catastrophic Risk Insurance Facility. The CCRIF is a disaster insurance program supported by most of the nations in the Caribbean and is the world’s first regional risk insurance facility.
Though the funds that Haiti will get (only USD 8Million) are not proportional to the magnitude of the disaster it suffered, the CCRIF is only version 1.0 of hopefully a new financial mechanism. One of the fundamental problems with regional risk management facilities like CCRIF, especially when covering an area like the Caribbean, is that disasters (most frequently hurricanes in this area) tend to affect multiple members at the same time. Perhaps a more geographically diverse risk pool would be more effective and cheaper? Anyone with experience in how insurance risk pool design/structure care to weigh in?
In any case, innovative initiatives like CCRIF are needed across the world. But more importantly, national and transnational risk management techniques such as the CCRIF need to be combined with initiatives such as microinsurance at the local level. Microinsurance alone (especially for agriculture and disaster insurance) at the end of the day might not be effective at preventing the tumble down the poverty ladder. The target market for microinsurance are also heavy users of social services and other support nets provided by governments. In times of calamity, it is necessary to make sure not only that the individuals can replace their livelihood income, but also that government and social services (which they will need even more) continue to operate.
After reading a great primer on microinsurance, we look forward to discussing these issues and the realities of implementing microinsurance with David Sattherwaite, Senior Global Microinsurance Office from Oxfam.
