Building Resilience Through Disaster Risk Insurance
• Human actions and the climate change are contributing to the increasing trend of natural disaster and the human and economic losses. A long-term global effort is needed towards reversing or slowing down the climate change, but the economic losses due to these natural disasters can be mitigated through efficient risk transfer solutions.
Figure: Natural Catastrophe in India since 1990
• Risk transfer refers to the process of shifting the financial burden of specific risks from one party to another, either formally or informally. This enables households, communities, businesses, or government entities to secure financial resources from another party after a disaster occurs, in return for ongoing payments or other compensatory benefits.
• A common example of risk transfer is insurance, where an individual or entity pays regular premiums to an insurer in exchange for financial coverage in case of a loss.
• Additionally, informal risk transfer takes place within families or communities through mutual aid, credit, or gift exchanges, where there is an expectation of reciprocal support. Formal mechanisms, on the other hand, are established by governments, insurers, multinational banks, and other financial institutions to manage large-scale losses. These mechanisms include insurance and reinsurance agreements, catastrophe bonds, contingent credit arrangements, and reserve funds. The financial support for these instruments comes from premiums, investor funding, interest rates and accumulated savings.
Figure: Sovereign Disaster Risk Management Framework
• Disaster Risk Finance and Insurance Instruments aim to increase the resilience of vulnerable countries against the financial impact of disasters and to secure access to post- disaster financing before an event strikes, thus ensuring rapid, cost-effective resources to finance recovery and reconstruction efforts.
• Typically, governments seek financial protection for four different groups across society: national and local governments; homeowners and small
and medium enterprises (SMEs); farmers; and the poorest segment of the population.
• When a new insurance solution has to be put in place one needs to assess the availability, breadth, and depth of market risk transfer solutions for disasters. In particular, regarding disaster insurance, the following main elements could be considered:
• The segment of the population and the economy covered (e.g. low income group, small business enterprises, large commercial and industrial corporations, local governments)
• The hazards covered (natural and/or man-made, depending on the disaster risk profile of the economy)
• The scope of losses covered (e.g. property damage, business interruption, livelihood costs, life, accident, liability) by insurance
• The contractual mechanism through which disaster coverage is made available in the market—such as government-supported insurance schemes—along with the pricing mechanism that determines the cost of such insurance coverage.
Insurance Schemes
Insurance is a crucial method of risk transfer and plays a significant role in mitigating losses resulting from disasters. However, it should not be considered a direct funding mechanism for disaster management. It is essential to have an insurance system that is accessible and affordable, particularly for the general public, including those in rural areas. Various insurance programs have been introduced to cater to this need. Some of the insurance schemes are: Pradhan Mantri Fasal Bima Yojana–
• The Pradhan Mantri Fasal Bima Yojana (PMFBY) offers extensive insurance protection against crop failure, ensuring financial stability for farmers.
• This scheme includes coverage for all food and oilseed crops, as well as annual commercial and horticultural crops, provided that historical yield data is available and the required number of Crop Cutting Experiments (CCEs) are conducted under the General Crop Estimation Survey (GCES).
Restructured Weather-based Crop Insurance Scheme–
• The Restructured Weather Based Crop Insurance Scheme (RWBCIS) is designed to alleviate financial distress for insured farmers by addressing potential crop losses due to unfavorable weather conditions such as rainfall, temperature, wind and humidity fluctuations.
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Under the Weather-Based Crop Insurance Scheme (WBCIS), weather indicators act as a substitute for crop yields to determine compensation for assumed crop losses. The payout system is structured based on the degree of losses estimated through predefined weather triggers.
Seed Crop Insurance–
• This scheme aims to ensure financial protection and income stability for breeders and seed growers in case of seed crop failure. A key feature of the scheme is to cover risks associated with seed production at the field level, expected raw seed yield losses, and post-harvest seed crop losses. The objective is to encourage more breeders, institutions, organizations, and seed growers to participate in seed production.
Kisan Credit Card (KCC)–
Launched in 1998, the KCC scheme enables farmers to access credit for purchasing agricultural inputs such as seeds, fertilizers, and pesticides, as well as to withdraw cash for production-related expenses.
Over time, the scheme has been simplified to offer an ATM- enabled RuPay Debit Card with features like one-time documentation, a built-in cost escalation provision within the credit limit, and flexibility for multiple withdrawals within the sanctioned limit
Role of NGOs
• Prominent NGOs like the Self-Employed Women’s Association (SEWA) and the Tribhuvandas Foundation have made significant contributions to providing health insurance for economically disadvantaged families. They have introduced innovative approaches, such as integrating multiple risks into a single policy, linking insurance schemes with savings, and covering essential services that are often excluded from market-driven schemes, including maternity care and transportation costs during emergencies like riots and floods.
• Even in developed Western countries, sustainable insurance models have emerged from non-profit initiatives. Similarly, the Association for Sarva Seva Farms (ASSEFA) in Tamil Nadu offers livestock insurance, primarily covering buffaloes, cows, and bullocks.
• Cattle Protection Committees offer complementary services such as de-worming, vaccinations, and routine medical check-ups for livestock, with streamlined procedures for ease of access.
• Therefore, instead of a fully state-owned model, a state- led approach is increasingly viewed as a more effective strategy for insurance, which plays a crucial role in fostering disaster-resilient communities. Establishing meaningful partnerships with people's organizations, including cooperatives, trade unions, and savings and credit societies, is essential for ensuring comprehensive insurance coverage.
Role of Civil Society
• Numerous international and national NGOs, along with various institutions, provide grants for disaster management initiatives. Many of these institutions are affiliated with foreign governments and typically function through their embassies. Examples include the Japan International Cooperation Agency, the British Government’s Department for International Development, and the United States Agency for International Development.
• In addition to these, both international donor agencies like the Ford Foundation and national entities such as the Tata Trusts provide grants for disaster management efforts.
• Large international organizations, including CARE and OXFAM, also allocate resources to support smaller, local NGOs.
• Faith-based organizations such as Christian Aid, Islamic Relief, and Gayatri Parivar generate funds through private donations, which are then distributed to grassroots organizations for their initiatives.
Many organizations rely on private donations from individuals, corporations and institutions to raise funds. This donation-based approach is one of the oldest and remains among the most effective methods of fundraising.
Some organizations generate funds by charging for products and services. Examples include UNICEF and CRY, which raise money through the sale of greeting cards, while groups like the Centre for Science and Environment, Development Alternatives, and SEEDS generate revenue by selling publications and providing advisory services.
Lastly, some organizations secure funding through membership fees.