First insights: Landscape

of Climate and Disaster

Risk Insurance (CDRI)
in Asia and the Pacific

Published
by:
 First insights: Landscape of Climate and Disaster Risk Insurance (CDRI) in Asia and the Pacific

Introduction

Disasters affect the poor and vulnerable people in the developing world adversely. These people
suffer disproportionately due to their higher vulnerability and exposure and lower ability to cope and
recover. The impact of climate change is further amplifying this vulnerability and addressing this
requires a multi-layered and multi-stakeholder approach. The InsuResilience Global Partnership
brings together stakeholders from the Vulnerable 20 group (V20) and the G20 countries, multilateral
development organizations, private sector, civil society organizations and academia. This partnership
works to strengthen the resilience of developing countries and protect the lives and livelihoods of
poor and vulnerable people against the impacts of disasters.

The central objective of the partnership is to enable more timely and reliable post-disaster response
through Climate and Disaster Risk Finance and Insurance solutions. These solutions aim to reduce
humanitarian impacts, help poor and vulnerable people recover more quickly, increase local
adaptive capacity, and strengthen local resilience. This complements ongoing efforts in countries to
avert, minimize and address climate and disaster risks.

Against this background, an analysis of the current status of Climate and Disaster Risk Insurance
(CDRI) has been developed by the MSC (MicroSave Consulting) in collaboration with the Gesellschaft
für Internationale Zusammenarbeit (GIZ), and the Regulatory Framework Promotion of Pro-poor
Insurance Markets in Asia (RFPI-Asia), together with the InsuResilience Secretariat which shares first
findings of the CDRI landscape in Asia and the Pacific

Scope of the landscape study

The study focuses on 22 countries located in Asia

and the Pacific region - Afghanistan, Bangladesh,
Bhutan, Brunei, Cambodia, India, Indonesia, Laos,
Malaysia, Maldives, Mongolia, Myanmar, Nepal,
Pakistan, Philippines, Singapore, Sri Lanka,
Thailand, East Timor, Vietnam, Fiji, and the
Republic of Marshall Islands. Out of these, the
study identified four key markets of Bangladesh,
Indonesia, the Philippines, and Vietnam for greater
focus because of their high vulnerability to
disasters in general, while offering a contrast in
approaching disaster risk financing given that the
different nature of disasters that afflict these
markets1.
As part of the study, the team undertook a robust secondary research exercise on the climate
change adaptation policies and Disaster Risk Management Frameworks in the 22 countries. The

1
Earthquakes in Indonesia, typhoons in the Philippines, floods in Bangladesh, and storms and floods in Vietnam

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 First insights: Landscape of Climate and Disaster Risk Insurance (CDRI) in Asia and the Pacific

research included an analysis of the The countries analyzed by the study

current sources of disaster risk financing
used by these countries, for instance,
contingent funds or budgetary
allocations and re-allocations or both.
The study followed this by a scan of
existing insurance solutions that would
fall under the Climate and Disaster Risk
Insurance Category—sovereign risk
transfers, agriculture insurance, and
other disaster risk insurance products. In
the markets of Vietnam, Indonesia, the
Philippines, and Bangladesh, the study
engaged insurers and other stakeholders
in person and via telephonic
conversations. This policy brief presents
the first findings of the study while the
final full report is expected by the first quarter of 2020 at a workshop to discuss the findings.

Background: the need for Climate and Disaster Risk

Insurance

Asia is highly exposed to catastrophe events that cause damage and erode welfare and economic
gains. The nature of hazards faced across the region varies significantly. Asia has seen some of the
deadliest disasters in history, such as Cyclone Nargis2 in Myanmar and the 2004 Indian Ocean
Tsunami3. Disasters in Asia have also been some of the most costly, such as the Tohoku earthquake
and tsunami4 and the 2011 Thai floods5.
Floods are the most persistent hazard across the region. Analysis indicates that the average annual
economic losses from flood disasters in Asia could surge to USD 500 billion or more by 2050. Half of
all Association of Southeast Asian Nations (ASEAN) member states have experienced at least one
flood event that cost over USD 100 million in the past decade. Drought hazard is also widespread
and affects agricultural production in parts of most Asian countries. The pattern of exposure to
tropical cyclones and geophysical hazards of earthquakes and volcanic eruptions is more
geographically specific.
This heterogeneity in hazard generates different disaster financing needs that a government needs
to address. A government needs to provide for the costs for response and recovery after rapid-onset
disasters, it also funds livelihood assistance and food security responses to flood or drought-

2
Cyclone Nargis: 84,537 dead and 2.7% of Myanmar’s 2008 GDP lost - the Association of Southeast Asian Nations (ASEAN) and the United
Nations (UN) released the Post-Nargis Joint Assessment (PONJA) report, 2009
3
Indian Ocean Tsunami: over 220,000 dead and combine losses of over USD 10 billion, Asian Disaster Preparedness Centre, 2005
4
A 9.0 magnitude earthquake and consequent tsunami at the north-eastern coast of Japan in 2011 caused an estimated loss of USD 360
billion
5
Thai floods 2011: A total economic loss of USD 8.2 billion: Thai chamber of Commerce, 2011

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 First insights: Landscape of Climate and Disaster Risk Insurance (CDRI) in Asia and the Pacific

damaged crops and reconstruction of critical infrastructure after earthquake, flooding, or storm
damage.

Key examples and lessons in the Asia and Pacific region:

1. Disaster risk management frameworks are present and implemented in the region, but these
frameworks still need to incorporate Climate and Disaster Risk Insurance. All countries analyzed,
with one exception, have a defined and legislated disaster risk management framework in place. At
the legislative level, almost all such frameworks look at both pre- and post-disaster responses to
disasters and catastrophes. Bigger economies in the region, like India, Bangladesh, Philippines,
Thailand and Vietnam have placed considerable emphasis on developing a better understanding of
the disaster risks that the country faces. Based on this understanding, these nations have been
developing early warning systems, better response mechanisms, and infrastructure for long-term
resilience. None of the frameworks that the study covered featured insurance as an important
mechanism of risk financing or risk transfer, except Vietnam, which identifies insurance as an
important risk financing mechanism and Indonesia that has recently proposed a public assets
disaster risk insurance program.

2. 14 of the 22 countries studied have defined one or more contingency funds and reserves to
mount disaster relief efforts, including national budgetary allocations and re-allocations that
can be utilized for these efforts. However, except for countries like India, Malaysia, Singapore
foreign and donor support remains critical for most countries when responding to disasters. The
initial findings from the study estimate that over the last 6 years about USD 5 billion have been
allocated for ex-ante disaster risk finance such as contingency funds and reserves to together with
ex-post instruments such as national budgetary allocations and re-allocations. Depending on the
type of risks that occur the use of ex-ante disaster risk instruments such as contingent funds,
contingent credit lines and risk transfer increase post disaster financial capacity as these
instruments enable fast liquidity after an event. The study estimates that in the same period
about USD 9 billion were received in international aid to address post-disaster
management. However, shrinking international aid efforts are threatening post-disaster relief.
These contingency funds are not generally used to access insurance solutions. However, two
examples of use of funds were seen in the Philippines6 and Indonesia7.

3. No regulations specific to Climate and Disaster Risk Iinsurance exist in the region, while
current Insurance regulations are not seen as enabling for the development of Climate and
Disaster Risk Insurance business models. The study did not identify any regulatory framework that
works towards index-based or similar specialized weather index or disaster insurance products. In
the Philippines, for instance, non-life insurance products are taxed at 26%. According to insurers
like AXA and Pioneer, such a tax regime makes a costly product like agriculture or disaster risk
insurance products appear even more expensive.

6
Insurance is an allowed allocation up to 5% of DRM mandated funds to secure insurance coverage for disaster volunteers
7
Indonesian government has recently announced that it will secure insurance coverage for all public assets such as government buildings
etc.

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First insights: Landscape of Climate and Disaster Risk Insurance (CDRI) in Asia and the Pacific

Both AXA and Pioneer also highlighted that in the commercial market, disaster coverage or “acts of
god” are provided as optional risk coverages with more big-ticket corporate insurance products like
property insurance to businesses and corporates. They opined that the tough competition for such
accounts makes insurers price their products to be competitive instead of reflecting the real cost of
such coverage, resulting in a fight to be the “lowest bidder”. Insurance stakeholders in Bangladesh
believe that regulators can play a positive role if they offer more enabling regulations and allow
capacity-building of insurers in the technical aspects of Climate and Disaster Risk Insurance.

4. Most losses caused by disasters are yet uninsured in the region. Data from Swiss Re Sigma
reports on nine of the 22 countries being studied in the last decade indicates that 19 of the biggest
disasters and catastrophes caused losses of USD 140 billion. These disasters, including floods,
earthquakes, and storms or typhoons, resulted in the deaths of 35,611 persons and rendered 200
million people homeless. Of the USD 140 billion losses suffered, only USD 20 billion or a mere 14.2%
were insured across all sectors.

5. In the region, the study identified 25 interventions that qualify as Climate and Disaster Risk
Insurance that cover, directly or indirectly, over 212 million people. At the macro level, these 5
sovereign risk transfer schemes indirectly provide some degree of coverage to over 171.8 million
people in countries like Philippines, Myanmar, Lao, Maldives and those from the Pacific Island
Countries like Marshal Islands and Fiji. At the meso and micro levels, through the 14 agricultural
and disaster insurance solutions identified, the study can estimate a direct/indirect coverage to
over 40.5 million farmers, fishermen etc. and over 43 million hectares of agricultural land. Putting
these numbers together the study can estimate about 212 million people being covered directly or
indirectly.

As per World Bank data, the population of the 22 countries studied is about 2.47 billion. Hence, this
estimated coverage of 212 million represents just 8.5% of the total population, leaving a protection
gap of 91.5%.
State-supported agriculture insurance programs
6. Five large-scale state-sponsored and in the region
subsidized agriculture insurance
programs are implemented
in the region. These programs cover
India, the Philippines, Thailand, Sri Lanka,
and Indonesia and offer coverage to
farmers against negative weather events.
These programs cumulatively cover over
40 million farmers, and over 43 million
hectares of agricultural land, with a total
premium of USD 3.021 billion, with India
contributing the tiger's share of USD 2.8
billion.

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First insights: Landscape of Climate and Disaster Risk Insurance (CDRI) in Asia and the Pacific

7. Private insurer-driven agriculture insurance Private sector-led agriculture insurance programs

has mostly developed through support from in the region
international donors and funding. The study
identified that nine such pilots or products
existed between 2016 and 2019—three in Sri
Lanka, two in Bangladesh, two in Indonesia, and
one each in Cambodia and the Philippines. Out of
these, all but two programs in Sri Lanka and one
program in the Philippines did not depend on
donor support.

8. The study identified five sovereign risk Countries with sovereign risk transfer
transfer arrangements that are relevant to arrangement in the region
seven of the 22 markets studied. The report
covers the following projects: SEADRIF (Lao PDR,
Myanmar, and possibly Cambodia), PCRIC (the
Republic of Marshall Islands and possibly Fiji),
World Bank-supported CAT DDO in the Maldives,
World Bank supported CAT DDO and Asian
Development Bank supported City Insurance Pools
in the Philippines. The chief objective of these
arrangements is to ensure the availability of
funding in the face of disasters that trigger these
arrangements without compromising the
economic viability of the countries covered when
dealing with disasters.

9. Like any other insurance product, distribution is a challenge for micro and retail disaster risk
insurance solutions. It is also a function of design. The study finds that state-subsidized (and
mandatory) coverage do well, as with the case of PMFBY in India. Moreover, bundled solutions also
can find scale, as with the case of Pioneer (890,000 lives covered in 2018). However, retail-
focused, non-subsidized solutions have proved to be a hard-sell as per the study. As AXA Philippines
observed, solutions like its business interruption coverage for MSMEs need time and effort on part
of agents to explain and sell. An agent more focused on selling credit products quickly may find it
challenging to invest the effort needed. Inputs from insurers and stakeholders in Philippines,
Vietnam, Indonesia and Bangladesh tells the study that they remain optimistic with respect to CDRI
becoming a strong commercial opportunity in the medium to long run, however, they also
identified capacity building of insurance professional in terms of CDRI, availability of suitable and
reliable data, actuarial and modelling capacities, lowering distribution costs through greater use of
technology as the missing pieces. All insurers were unanimous in identifying the need for client

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First insights: Landscape of Climate and Disaster Risk Insurance (CDRI) in Asia and the Pacific

education and awareness and state support as the most important factors that will help them be
more effective in offering CDRI solutions.

The value that a CDRI product can offer to the end client is also a matter of overall design of
solutions against disaster risk. As Card Pioneer, Philippines observes, an insurance solution by itself
is not enough and has to be complemented with other financial services like credit or savings or
both for it to be of value to the clients.

10. The use of technology in insurance and Disaster Risk Insurance shows a huge potential for
new solutions. Other than the use of weather-based indexes for factors like rains, floods,
earthquakes, the study could identify limited examples of the use of technology in these markets.
From a client-facing perspective, the study identified two interesting applications: A solution
provided by AXA “Red button”, a mobile app based emergency-call system and a block chain based
agriculture insurance in Sri Lanka. In this program by Aon, OXFAM and Etherisc, farmers don’t have
to submit claims, and insurers don’t need to train adjusters to administer the policies. Instead
blockchain smart contracts automate the process. Robotic weather stations record the amount of
rain falling on farms. In the event of extreme levels, claims will be triggered automatically.

Way forward
Climate and Disaster Risk Insurance in
the region is in its early stages. With
over 90% of the population
unprotected against the impacts of
climate changes and disaster and
under further increase in climate
impacts with ever more extreme
events there is an urgent need to
develop appropriate adaptation
strategies that involve ex-ante
planning and preparedness. Risk
finance and insurance is one element
to better cope with the consequences
of disaster.

For disaster risk finance to grow and take up an important role in in the region, governments and
policymakers must look to encourage and engage with insurers by understanding the risks better
and develop a comprehensive climate and disaster risk management strategy to better adapt to
climate change. This involves pre-arranged financing at governmental level for immediate response
and it involves developing a more systemic approach in disaster risk management. A comprehensive
strategy should also enable regulatory environments for development of disaster risk insurance at
individual level.

Furthermore, insurers in the region seek government support for reliable data that is efficiently
accessible and usable, alongside better weather monitoring infrastructure and reporting

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First insights: Landscape of Climate and Disaster Risk Insurance (CDRI) in Asia and the Pacific

mechanisms. Insurers in the region also seek to develop their capacities to design and model
solutions for negative weather events. They are interested in learning from peers and experiences
in other geographies. Ultimately, for Climate and Disaster Risk Insurance to succeed, especially at
the micro-level, it will have to find the right fit with other financial services like credit and savings
to help clients meet their disaster risk financing needs.

International cooperation and exchange of knowledge and capacities will be important such as the
International Conference on Inclusive Insurance, as will be the role of platforms like Mutual
Exchange Forum on Inclusive Insurance (MEFIN) that enable these exchanges in the region.
Ultimately, the platform for convergence, collaboration and coordination between different actors
and initiatives is offered by the G20/V20 initiated InsuResilience Global Partnership.

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First insights: Landscape of Climate and Disaster Risk Insurance (CDRI) in Asia and the Pacific

The landscape study of CDRI in Asia and the Pacific has been supported by:

Insuresilience Global Partnership

The InsuResilience Global Partnership is a coalition of V20 and G20 countries, multilateral
development organizations, private sector, civil society organizations and academia working
towards a vision to strengthen the resilience of developing countries and to protect the lives and
livelihoods of poor and vulnerable people from the impacts of disasters by enabling faster, more
reliable and cost-effective responses to disasters.

https://www.insuresilience.org/

GIZ RFPI ASIA

The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) Regulatory Framework

Promotion of Pro-poor Insurance Markets in Asia (RFPI) is a regional program working to enhance
the enabling policy and market conditions for inclusive insurance development. It collaborates with
insurance supervisory authorities, government institutions, insurance providers, development actors
and other change agents to improve access to insurance by building the capacities for insurance
regulation and supervision and by promoting the development of innovative insurance solutions for
the low-income sector. The current phase of the program focuses on the promotion of climate risk
insurance and is focusing on implementation in Indonesia, the Philippines and Vietnam.

https://www.inclusiveinsuranceasia.com/

MEFIN

GIZ RFPI Asia is the Secretariat for the Mutual Exchange Forum on Inclusive Insurance (MEFIN)
Network, a peer network of insurance regulatory authorities in Asia working closely with the
insurance industry established as a platform for an effective and efficient exchange of relevant
knowledge and best practices on inclusive insurance. The MEFIN Network members include the
insurance regulatory authorities of Indonesia, Mongolia, Nepal, Pakistan, Philippines, Sri Lanka, and
Vietnam. GIZ RFPI Asia is funded by the German Federal Ministry for Economic Cooperation and
Development (BMZ).

http://mefin.org/

MicroSave Consulting

MicroSave Consulting (MSC) is a boutique consulting firm that has, for 20 years, pushed the world
towards meaningful financial, social, and economic inclusion. We are a globally trusted, yet locally
based organization that offers high-quality, practical market-led solutions to accelerate financial,
economic, and social inclusion in the digital age.
With about 190 staff of different nationalities and varied expertise, MSC is proud to be working in
over 50 developing countries. We have offices in Bangladesh, India, Indonesia, Kenya, Philippines,
Senegal, Singapore, Vietnam, Uganda, and the United Kingdom.

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First insights: Landscape of Climate and Disaster Risk Insurance (CDRI) in Asia and the Pacific

We work with participants in financial, economic, and social ecosystems to achieve sustainable
performance improvements and unlock enduring value. Our clients include governments, donors,
private sector corporations, and local businesses. We can help you seize the digital opportunity,
address the mass market, and future-proof your operations.

https://www.microsave.net/

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First insights: Landscape of Climate and Disaster Risk Insurance (CDRI) in Asia and the Pacific

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