By Mr. Sumanta Kumar Sahoo, National Programme Coordinator, UNDP India

Overview

The UNDP’s Insurance and Risk Finance Facility (IRFF) is dedicated to creating innovative insurance solutions that enhance resilience against socio-economic, climate, health, and disaster risks. A key initiative is the development of parametric insurance products that offer quick payouts based on predefined triggers (e.g., specific weather conditions), ensuring faster financial relief compared to traditional insurance models, which require verification of actual losses.

Parametric Insurance Product Development

Pacific Islands

In collaboration with private sector partners, regulators, and agricultural agencies, UNDP has introduced parametric micro and meso insurance products across countries such as Fiji, Tonga, Samoa, Vanuatu, and Papua New Guinea. These products cover risks associated with high windspeed, excessive rainfall, droughts, and earthquakes, benefiting farmers, fishers, and small businesses by providing faster financial protection in times of crisis.

Southeast Asia

Partnering with global insurance companies, UNDP is developing digitally enabled parametric insurance solutions aimed at protecting vulnerable families and small businesses. These initiatives are focused on cost-effective, large-scale risk finance solutions, addressing climate and disaster risks in countries across Southeast Asia.

Case Study: Parametric Insurance in the Pacific Islands

Previous Challenges

1. Delayed Payouts: Traditional insurance models often resulted in payouts that took months or years, severely hindering communities’ ability to recover quickly from natural disasters.
2. High Costs: Insurance premiums were often too high for smallholder farmers, fishers, and small businesses, leaving many without coverage.
3. Complex Claims Process: Traditional claims involved lengthy procedures, requiring substantial proof of loss, which added stress to already affected communities.
4. Limited Coverage: Conventional insurance products were not tailored to the specific needs of vulnerable communities, often excluding critical risks like cyclones and floods.

Current Benefits

1. Immediate Financial Relief: Parametric insurance triggers payouts based on predefined weather conditions (e.g., windspeed, rainfall) within days, enabling communities to recover swiftly.
2. Affordability: Lower premiums make parametric insurance accessible to a wider population, including smallholder farmers and fishers.
3. Simplified Claims Process: Payouts are automatically triggered by objective data, eliminating the need for complex claims processes.
4. Tailored Coverage: Insurance products are designed to cover the specific risks most relevant to communities, including cyclones, floods, and droughts.

Example: Fiji’s Experience with Parametric Insurance

In Fiji, parametric insurance has proven to be a game-changer for farmers. Before its introduction, farmers struggled for months after cyclones without financial support, leading to prolonged recovery times and increased debt. With parametric insurance, payouts are made within two to three weeks after a cyclone, based on windspeed data. This quick relief allows farmers to purchase seeds, repair infrastructure, and resume their operations, significantly reducing the economic fallout of natural disasters.

Impact: The shift to parametric insurance in the Pacific Islands has created a more reliable safety net, enhancing resilience and empowering vulnerable communities to recover from disasters more quickly and sustainably.

Disclaimer: The views expressed in this piece are those of the author/s and do not necessarily reflect the views or policies of AIDMI.