Micro- -Insurance for Natural Disasters Insurance for Natural Disasters Micro Concepts, Present and Future Outlook Concepts, Present and Future Outlook Haresh C. Shah Haresh C. Shah Obayashi Professor of Engineering, Emeritus, Obayashi Professor of Engineering, Emeritus, Stanford University Stanford University Founder & Sr. Advisor, RMS Inc. Founder & Sr. Advisor, RMS Inc. Asian Science and Technology Forum Asian Science and Technology Forum Tokyo Conference Center Shinagawa Tokyo Conference Center Shinagawa October 5, 2007 October 5, 2007 Tokyo, Japan Tokyo, Japan
Changing Demographic Profile 15 Most Populous Cities in the World in 2015 Population in Millions 4 0 3 5 3 0 2 5 2 0 15 10 5 0 k i i y a n a l o a s s i s o a h u h r t t t k e o e y l o b i r t o o l u c e C a l u r k a g z e m a i e Y a D h e o k a c A g S o P r u D a u l T L a w n a c s M J Q o K e A C i o x a - N a n s e S l M e o i n u L a B M City High per capita Low per capita Source: Munich Re, Megacities- Megarisks income income . .
Changing Demographic Profile (cont’ ’d) d) Changing Demographic Profile (cont The Gap is Widening 5.00 Population in billions 4.00 3.00 2.00 1.00 0.00 1950 1975 2000 2030 Urban population in industial countries Rural population in developing Urban population in developing countries Rural population in industrialis Source: Munich Re, Megacities - Megarisks . .
Natural Catastrophes: Number of Loss Events Natural Catastrophes: Number of Loss Events Africa 55 America 177 Asia 272 Australia/Oceania 66 Europe 131 701 Worldwide Earthquake, Volcanic Eruption Flood Windstorm Others Source: Munich Re Topics 2001 . .
Natural Catastrophes: Number of Fatalities Natural Catastrophes: Number of Fatalities Africa 1,525 America 1,758 Asia 21,500 Australia/Oceania 13 Europe 267 25,063 Worldwide Earthquake, Volcanic Eruption Flood Windstorm Others Source: Munich Re Topics 2001 . .
Natural Catastrophes: Economic Losses (US$ m) Natural Catastrophes: Economic Losses (US$ m) Africa 330 America 18,687 Asia 13,982 Australia/Oceania 535 Europe 2,456 35,990 Worldwide Earthquake, Volcanic Eruption Flood Windstorm Others Source: Munich Re Topics 2001 . .
Natural Catastrophes: Insured Losses (US$ m) Natural Catastrophes: Insured Losses (US$ m) Africa 0 America 9,091 Asia 1,788 Australia/Oceania 122 Europe 508 11,509 Worldwide Earthquake, Volcanic Eruption Flood Windstorm Others Source: Munich Re Topics 2001 . .
Natural Catastrophes: 700 Loss Events Natural Catastrophes: 700 Loss Events 12% 36% 20% Earthquake, Volcanic Eruption Windstorm Flood Others 32% Source: Munich Re Topics 2001 . .
Natural Catastrophes: 25,000 Fatalities Natural Catastrophes: 25,000 Fatalities 9% 19% Earthquake, Volcanic Eruption Windstorm 64% 8% Flood Others Source: Munich Re Topics 2001 . .
Natural Catastrophes: Economic Losses: US$ 36 bn bn Natural Catastrophes: Economic Losses: US$ 36 11% 10% Earthquake, Volcanic Eruption 55% Windstorm 24% Flood Others Source: Munich Re Topics 2001 . .
Natural Catastrophes: Insured Losses: US$ 11.5 bn bn Natural Catastrophes: Insured Losses: US$ 11.5 4% 8% Earthquake, Volcanic Eruption Windstorm Flood 88% Others Source: Munich Re Topics 2001 . .
Insured vs. Total Economic Loss in Major Natural Catastrophes Total Economic 5,000 4,571 2,000 21,591 10,024 5,000 3,700 1,660 136 2,000 36,406 4,535 Loss (US$MM) 100% 80% 100% 60% 47% 40% 40% 20% 8% 7% 6% 6% 5% 5% 4% 2% 0.3% 0% Honduras (Mitch,1998) Bangladesh (Floods, 1998) Indonesia (Floods, 1996) USA (Northridge, 1992) Turkey (Izmit, 1999) Poland (Floods, 1997) Colombia Puerto Rico (Hugo, 1989) France (Storm Lothar, 1999) India (Gujarat/Bhuj, 2001) El Salvador (San Salvador, 1986) Mexico (Mexio City, 1985) . . Insured Uninsured Source: Eugene Gurenko, 2004. Catastrophe Risk and Reinsurance: A Country Risk Management Perspective
Catastrophe Insurance Penetration in Developing Catastrophe Insurance Penetration in Developing Countries Countries � India – under 0.5% � the Philippines – under 0.3% � Iran – under 0.05% � Romania – under 5% � Bulgaria – under 3% � China – under 0.5% � Turkey – 17% . .
Observations from Data Observations from Data 1. Economic losses are increasing with time 2. No progress in fatality reduction 3. Developed countries have made progress in reducing fatalities but not in economic losses 4. Developing countries have not made any progress in reducing fatalities or economic losses . .
Discontinuity Between Knowledge and Performance Discontinuity Between Knowledge and Performance � Knowledge Generators are not talking to Knowledge Users & Knowledge Implementers. � Experts talking to Experts can not close information transfer loop. � Lack of understanding of who are the movers and shakers on the part of Knowledge Generators. � Lack of articulation of where the ownership of the problem lies. � Reaching out and connecting the Last Mile is missing. . .
Source: Financial Times Source: Financial Times . .
Some Suggestions for Creating Effective Partnerships Some Suggestions for Creating Effective Partnerships � Understand and communicate incentive for Risk Mitigation to General Public. � Partner with Media to communicate incentives and costs. � Partner with Financial Institutions to communicate incentives and costs. � Partner with Insurance/Reinsurance Industry to mitigate risk through Risk Transfer. � Develop products like micro-insurance and micro-credits to help low income and rural population to transfer risks and to improve the risk profile of their homes . . .
Concluding Remarks Concluding Remarks � Dynamics of Demographic changes require us to develop true International Partnerships for Natural Disaster Mitigation. � “Business as Usual” has not worked. Innovative methods are needed to get the job done. � Unless society understands properly the cost/benefit equation of Risk Mitigation strategies and understands personal, corporate and societal incentives, it would be difficult to reduce Natural Disaster Risk. . .
What is MICROINSURANCE? What is MICROINSURANCE? � “ micro ” or insurance cover with “ low/small sum assured/benefit levels .” � Target : low income households/ moderately poor i.e., households above the poverty line but vulnerable to slipping back into poverty. Also, SME’s are potential targets. . .
Why Microinsurance Microinsurance? ? Why Poverty Dynamics: 25 years Poverty Dynamics: 25 years ago to Present ago to Present 25 Years Ago 25 Years Ago Poor Not Poor Poor Not Poor At At Poor 17.8% 7.9% Poor Present Present (A) Remained Poor (C) Became Poor Not Not 11.1% 63.2% Poor Poor (B) Escaped Poverty (D) Remained Non-Poor Trends in household poverty in 35 North Indian Villages (poor households, %) Source: Anirudh Krishna (2004); “ Escaping Poverty and Becoming Poor: Who Gains, Who Loses, and Why? ”; World Development Vol. 32, No. 1, pp. 121–136, 2004. . .
Risk analysis, Product development, and Pricing � Aligning products with the NEEDS. Given the “low- value”and “cost of product development” limited investments made by insurance company to develop new products. � NO products to cover major “livelihood risks” of the rural poor e.g., livestock. . .
Remittance Financing Remittance Financing � Gordon Woo of RMS has suggested a scheme for financing the Risk Transfer for Micro Insurance. � He calls his scheme “Remittance Financing of Micro-Insurance . � Following Slides are taken from Gordon Woo’s Presentation. . .
Trans- -national risk transfer to national risk transfer to diaspora diaspora Trans communities in the industrialized world communities in the industrialized world Developing Industrialized World World Financial Risk Migration Insurance remains unaffordable Insurance remains unaffordable for most people in the developing world. for most people in the developing world. . .
The rising level of remittances The rising level of remittances $ BILLION $ BILLION 200 180 160 140 Economic Economic 120 Implications Implications 100 of Remittances of Remittances 80 and Migration and Migration 60 40 20 World Bank World Bank 0 2000 2001 2002 2003 2004 2005 2006 . .
Remittances pay for natural disasters Remittances pay for natural disasters Remittances from Bangladeshis rose by 18% in the aftermath of the 1998 Bangladesh floods. Expatriate Gujaratis contributed hundreds of millions of dollars above their normal remittances, after the January 2001 Bhuj earthquake. . .
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