Real Risk

Background of

Afat Vimo

“Microinsurance is the protection of low-income people against

specific perils in exchange for regular monetary payments (premi-

ums) proportionate to the likelihood and cost of the risk involved.

As with all insurance, risk pooling allows many individuals or

groups to share the cost of a risky event.”

Microinsurance products are increasingly important for disas-

ter risk reduction. They transfer financial risk from vulnerable

individuals to the insurance market. Generally, insurers bundle

several hazards in one contract; this allows premiums paid for

better-understood hazards to reduce the rates of less predictable

ones such as earthquakes.

Afat Vimo

is a version of microinsur-

ance designed for the poor among the vulnerable. It protects

people from the impacts of hazards on their assets by providing

cash payouts in the aftermath of a disaster. Monthly premiums are

paid to the insurance companies through AIDMI.

Afat Vimo

promotes learning across insurance companies,

authorities, donor communities, and non-governmental orga-

nizations (NGOs) to facilitate the convergence of microfinance

tools and disaster risk reduction strategies. The

Afat Vimo

scheme represents an innovative approach to risk identification,

pooling and transfer, which recognizes the fact that the major-

ity of poor disaster victims have little or no access to risk transfer

schemes.

The

Afat Vimo

project has arisen under the Regional Risk

Transfer Initiative of the ProVention Consortium; it builds upon

the significant work done on risk identification undertaken by

the ProVention Consortium through the Disaster Management

Facility and Hazard Management Unit of the World Bank and the

International Federation of Red Cross and Red Crescent Societies.

The main objective of

Afat Vimo

is the convergence of micromit-

igation and microinsurance as a precondition for effective local,

low-cost risk transfer.

Demand for insurance

In 2002, the majority of beneficiaries from Gujarat earthquake

relief were still exposed to disaster induced financial losses.

Studies including the Gujarat Community Survey of 2002 by

AIDMI and ProVention Consortium revealed that access to risk

transfer is correlated with sustainable economic recovery among

victims.

AIDMI found that only two per cent of those surveyed

had insurance. As a result, AIDMI designed a microinsurance

scheme to augment its ongoing Livelihood Relief Fund activi-

ties.

The resultant scheme was the product of extensive

discussions and negotiations with insurance providers who might

be interested in supplying low-premium insurance policies to

poor clients. This was a challenge.

Product description and client profile

Afat Vimo

policyholders are covered for damage or loss up to the

value of USD1,744 for non-life assets and USD465 for loss of life

– giving a total coverage of USD2,209. Current

Afat Vimo

clients

include individuals from low-income households with an annual

income of USD280. These households are mainly involved in

small enterprises in the informal sector and have assets worth

approximately USD209.

Disasters such as fire, explosion, riots, malicious damage,

aircraft damage, cyclone, tempest, flood, inundation, earth-

quake, lightning, implosion, strike, impact damage, storm,

typhoon, hurricane, tornado, and landslide are covered under

the scheme.

Afat Vimo

policyholders are also supported with

micromitigation measures such as fire-safety training, seismic-

safe construction practices and business development services.

The policy is available for an annual premium of less than USD4

(approximately three days’ wages). Damage to policyholders’

house, household assets, trade stock, and loss of wages incurred

by accidents are covered. The life of the earning household

member is also covered.

Afat Vimo

is a partner-agent microinsurance model, where

AIDMI has brought together a group of poor communities and

commercial and public insurance companies have developed a

policy to cover them against 19 disasters.

AIDMI is both the facilitator and intermediary of the

Afat Vimo

scheme. Firstly, the

Afat Vimo

team compiles a list of potential candi-

dates eligible for the scheme based on their registered demands.

Once the insurance companies have designed operational policies

[

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Though insurance can provide immediate cash for replacing essential assets following disasters, the poor are mostly unprotected

Photo: AIDMI, Gujarat flood recovery 2005