Insurance is the tool many individuals use to transfer risk and cover costs incurred due to unfortunate situations. For people who can afford to pay premiums and transfer their risk to an insurance provider, this is a practical option.
But what about people who struggle to meet their own food and income needs throughout the year and live in areas with annual occurrences of disasters? For them, the viability and reasonableness of using their minimal earnings towards paying premiums for risks that are regularly catastrophic must be carefully considered.
On a global scale, policy actors in the humanitarian, resilience and climate change arenas are increasingly interested in the potential of insurance to support disaster risk management. Large donor and private sector investments into global initiatives such as the G7-led InsuResilience Global Partnership and Investment Fund and the Insurance Development Forum signal confidence in the ability to use insurance to leverage additional finance for disaster response and recovery.
At the individual level, in a number of CARE’s programmes we have introduced different types of insurance for poor households to help them prepare for, respond to and recover from risks. Risks which when they happen could push people further into poverty, such as death of the income-earner in a family, entire crop failure due to drought, and destruction to property from devastating cyclones.
The concerns over affordability and whether insurance is an appropriate mechanism has been something that CARE is very aware of, and in the review we have published this month, Insuring for a changing climate: A review and reflection on CARE’s experience with microinsurance (CARE, January 2019), we want to share the questions this has raised for ourselves and important reflections that we feel everyone should be considering.
We have reviewed 7 case studies across CARE’s work in Kenya, Ghana, Bangladesh, India, Nepal and Tanzania, and drawn out common and valuable lessons.
Our review highlights the importance of early and continued engagement with the potential ‘client base’ – poor households and communities – in the design of new insurance products to ensure they are clear on how insurance works and the risks involved (particularly to reduce basis risk), and that they are appropriate for the needs, coverage, cultural context, risk appetite and the level of premiums they can afford.
Sustainability is a critical issue for insurance. Considerations include: seeking the commitment of insurance providers, whether private sector or government, to continue to support the products and ensure they are equitable; if premium subsidies are needed, how sustainable and financially viable the insurance product will be; and insurance as part of a comprehensive risk management plan rather than a stand-alone intervention.
Insurance products should also avoid further distancing women from influencing decision-making and control of resources in their home and should be designed to address the different needs and risks of women and men.
Climate change is leading to more catastrophic risks, and as insurance is being introduced more frequently as a means for addressing these risks, we feel the lessons we have learned through our experience with micro-insurance are relevant to the climate and disaster risk insurance field. In sharing them we hope to stimulate discussion among others who are working on insurance for the poor.