Disaster Risk Financing and Insurance: Issues and results
December 01, 2015
Catastrophic and index insurance in developing countries
October 5, 2017, 2-6pm, Paris
Workshop organised by the Fondation pour les études et recherches sur le développement international (FERDI), the Centre d'Etudes et de Recherches sur le Développement International (CERDI) and the Agence française pour le développement (AFD). Context
Losses due to natural disasters have increased sharply over the last 30 years. This has been caused by population growth, greater concentration of population in urban environments, and more accumulation of assets that can be destroyed by natural events. Hazards have also risen with climate change and are expected to grow exponentially. What is remarkable, however, is that the gap in insurance protection between uninsured and insured natural catastrophes has been increasing. Lack of financial protection against disasters leads to slow recovery, costly financing of relief and reconstruction, and political manipulation in the allocation of post-disaster assistance.
For this reason, many countries have started to introduce Disaster Risk Financing and Insurance (DRFI) schemes. A leading pioneer in doing this is Mexico with both a national strategy for financing the reconstruction of disaster-affected public assets, FONDEN, and a scheme specifically targeted at protecting smallholder farmers from yield losses due to drought, CADENA.
Well-designed and implemented DRFI schemes can have advantages both ex-ante for better risk management and ex-post for better shock coping.
Ferdi and Cerdi organized in June 2015 a workshop Disaster Risk Financing and Insurance (DRFI) coordinated by Alain de Janvry and Elisabeth Sadoulet, Senior fellows at Ferdi and Professors at the University of California at Berkeley, gathering many of the best international experts on these issues. The aim of the workshop was to review results from rigorous impact evaluations of some existing schemes and also look into politics of DRFI.
On this basis and to continue their long-standing collaboration, Ferdi, Cerdi and the French Agency for Development seek to open a dialogue with development practitioners, NGOs, private banks and insurance companies in order to confront research results with these actors’ experience. They aim at stimulating interactions and favoring the exchange of experiences between researchers and practitioners.
Mercredi 5 octobre
14.00 – 14.15
Opening remarks
Patrick Guillaumont, President of Ferdi
Gaël Giraud, Chief Economist - Executive Director for the Direction Innovation, Research and Knowledge, AFD
14.15 – 15.15
Session 1: Experiences with catastrophic insurance
Chair: Christophe Angely, Head of Strategy, Ferdi
“Planning for disasters”
Daniel Clarke, Actuary and Economist, U.K. Government Actuary's Department
“Insuring Growth: The Impact of Disaster Funds on Economic Reconstruction in Mexico”
Alejandro Del Valle, Professor, Robinson College of Business, Georgia State University
Discussant: Olga Speckhardt, Head of Global Insurance Solutions, Syngenta Foundation for Sustainable Agriculture
15.15 – 16.15
Session 2: Experiences with index insurance
Chair: Philippe Roudier, Research officer - Climate, agriculture & food security, AFD
“Making index insurance work: A review of recent progress”
Michael Carter, Professor, University of California at Davis
“Combining index insurance with other risk-reducing instruments”
Alain de Janvry, Professor, University of California at Berkeley and Senior Fellow Ferdi
Discussant: Madeleine Latapie, Marketing & Development Manager, AXA Global Parametrics
16.25 – 18.00
Panel discussion: What future directions for research and innovations on catastrophic and index insurance?
Chair: Michael Carter, Professor, University of California at Davis
Introductions:
Daniel Clarke, actuary and economist, U.K. Government Actuary's Department and Michael Carter, Professor, University of California at Davis
Panelist statements:
Antoine Roumiguie, Airbus Defence and Space
Jean-Luc Perron, Vice President, Yunus Center Paris
Assia Sidibé, Head of Government Services for West and Central Africa
Tanguy Touffut, Chief Executive Officer, AXA Global Parametrics
Conclusion:
Daniel Clarke, actuary and economist, U.K. Government Actuary's Department and Michael Carter, Professor, University of California at Davis
Gaël Giraud, Chief Economist - Executive Director for the Direction Innovation, Research and Knowledge, AFD
On 5 October 2017, FERDI and the Agence Française de Développement [French Development Agency, AFD] held a workshop on index-based and disaster risk insurance. The event, the latest in a series of climate risk insurance workshops moderated by Alain de Janvry and Elisabeth Sadoulet, was attended by around 60 academics, development practitioners, and insurance professionals.
The speakers were Gaël Giraud (AFD), Patrick Guillaumont (FERDI), Christophe Angely (FERDI), Daniel Clarke (UK government), Alejandro Del Valle (Georgia State University), Olga Speckhardt (Syngenta Foundation for Sustainable Agriculture), Philippe Roudier (AFD), Michael Carter (University of California, Davis), Alain de Janvry (University of California, Berkeley and Senior Fellow, FERDI), Madeleine Latapie (AXA Global Parametrics), Antoine Roumiguié (Airbus), Jean-Luc Perron (Yunus Centre, Paris), Assia Sidibé (African Risk Capacity), Tanguy Touffut (AXA Global Parametrics) and Vincent Caupin (AFD).
The event began with opening addresses by Gaël Giraud and Patrick Guillaumont, who recalled FERDI’s involvement in the University of Clermont Auvergne’s I-Site research programme on the ‘economic impact of natural disasters’. Christophe Angely and Philippe Roudier respectively opened session 1 (Experiences with catastrophic insurance), and session 2 (Experiences with index insurance).
Why do we need disaster risk insurance?
There are several arguments in favour of offering greater protection against natural disasters. Daniel Clarke, who presented his book Dull Disaster during the workshop, explained how failing to plan ahead and make provisions for future natural disasters can prove extremely costly, and how a proactive stance from governments can help unlock funds more quickly and boost post-disaster resilience.
His contribution focused on pre-disaster instruments, including funding plans (‘disaster’ budgets or funds, dedicated loan facilities, and conventional and index-based insurance products), established decision-making processes and inter-governmental partnerships. He explained that this was the thinking behind the new Centre for Global Disaster Protection. Alejandro Del Valle talked about a practical example of a pre-disaster initiative – FONDEN, Mexico’s national disaster fund. Analyses have shown how municipalities benefiting from the fund – and neighbouring areas – have recovered more quickly post-disaster than non-qualifying municipalities. Olga Speckhardt pointed to a lack of private sector involvement in the instruments and facilities mentioned. In reply, Daniel Clarke and Alejandro Del Valle explained that private sector initiatives were in the pipeline, but were still in the early stages of development.
How does index-based insurance help reduce risks?
Most of the world’s 1 billion people existing below the poverty line live in rural areas. These people are particularly vulnerable to natural disasters. One possible way to reduce these risks for rural populations is to invest in index-based insurance. Michael Carter explained how index-based insurance products can both drive up agricultural investment and have a positive impact on nutrition. However, he stressed that such products are still far from perfect – premiums remain high, policies vary markedly in quality, policyholders are not always guaranteed a payout and little effort has been made to explain how they work. He argued that research should focus on where improvements can be made, with a particular emphasis on adopting minimum policy quality standards and improving data collection (satellite observations, farmer-supplied information) to ensure that payouts materialise. He also explained that there are other risk-reduction instruments, in addition to index-based insurance. [see presentation].
Alain de Janvry claimed that using a combination of instruments would be more effective at reducing risks – for example, combining index-based insurance with innovative technologies, emergency loans and free insurance schemes for small-scale farmers (such as Mexico’s CADENA scheme). Madeleine Latapie asked the researchers a series of questions, stressing that AXA is interested in index-based insurance but pointing to a lack of communication around such products and difficulties with policy wording and implementation.
During the ensuing panel discussion, Antoine Roumiguie, Jean-Luc Perron, Assia Sidibé, and Tanguy Touffut talked about progress on measuring agricultural losses and calculating payout thresholds, improved yield measurement techniques, how insurance companies are finding it hard to offer standardised products, and why farmers need subsidised policies and help paying their premiums. On the issue of subsidies and financial support, Daniel Clarke stressed that development agencies would only be willing to help if the data were more robust.
Assia Sidibé pointed to the fact that farmers already receive subsidies of this type, since it makes more sense for governments to subsidise insurance products than to bear post-disaster recovery costs.
The panel members also touched on the importance of private sector involvement, stressing the need for a stakeholder dialogue platform and calling for the creation of a global agricultural insurance observatory. [see presentation].
In their closing remarks, Daniel Clarke, Michael Carter and Vincent Caupin made the point that rapid, government-led disaster response is only possible if an intervention strategy and financial instruments are in place, and if these instruments are used by all stakeholders across the board.
