Together We Stand

[ 121 ] Risk transfer and insurance: investing in disaster risk reduction for urban resilience Mihir R. Bhatt, All India Disaster Mitigation Institute; and Ronak Patel, Stanford University D ue to the combination of high exposure to natural hazards and a rapidly developing economy leading to quick urban growth with high vulnerability, developing countries like India experience significant economic losses caused by disasters. In countries like India, disaster insurance for large busi- nesses is available and utilized, but a vast majority of informal businesses — a significant sector of urban econo- mies — lacks information, access and even products for such a protection mechanism. India’s Finance Minister said in his 2014/15 budget speech that “a large proportion of India’s population is without insurance of any kind — health, accidental or life.” 1 According to the Insurance Regulatory and Development Authority (IRDA) of India, insurance penetration (the premium collected by Indian insurers) was only 3.96 per cent of gross domestic product (GDP) in the financial year 2012/13 and per capita premium underwrit- ten (insurance density) in India during the same period was US$53.2. 2 This progress is relatively small in terms of the available opportunities and need in India. Eighty-five per cent of the land is vulnerable to one or multiple hazards and many cities are located on hazardous terrains. Moreover, 53 Indian cities have a population of more than a million 3 and 25 of these cities are in coastal states 4 which make them extremely susceptible to climate risk. Because urban areas in India contribute to 60 per cent of the country’s GDP and this contribution is expected to reach 75-80 per cent by 2030, 5 it is imperative for India to protect urban development from disaster risk. Following the 2001 Gujarat earthquake, the All India Disaster Mitigation Institute (AIDMI) found that a majority of relief receivers were still exposed to significant disaster- induced financial losses. A 2003 survey in Gujarat revealed that access to insurance was correlated with sustainable economic recovery among those affected by the earthquake. The survey was conducted in September 2003 within 14 earthquake-affected slum communities in Bhuj, Gujarat. The survey provided information on what percentage of the population already had insurance (only 2 per cent) and how many respondents were interested in taking out a policy in the future. Based on this finding, AIDMI designed a microinsurance scheme to augment its ongoing livelihood relief activities. The resultant scheme was the product of discussions and negotiations with insurance providers who were interested in supplying low-premium insurance poli- cies to poor clients. Two regulated Indian insurers were invited to underwrite the Afat Vimo (Gujarati for ‘disas- ter insurance’) scheme. The Life Insurance Corporation of India covered life and the United India Insurance Company provided coverage for the non-life assets of the plan. In 2004, AIDMI became the first agency in India to design such a combination of life and non-life disaster insurance product for disaster victims through public insurance compa- nies with support from the global network, the ProVention Consortium. The Afat Vimo scheme, covering 19 types of disasters, was first piloted in Gujarat in 2004 and was later extended to the 2004 Indian Ocean tsunami victims in Tamil Nadu, and 2005 earthquake victims in Jammu and Kashmir. In 2011, the pilot scheme was extended to the flood victims in Odisha through the Society for Women Action Development (SWAD) with support from the European Union in part- nership with the non-governmental organization (NGO) Concern Worldwide India. The pilot projects implemented were linked with recovery and disaster preparedness, espe- cially in climatic hotspots where climatic hazards occur frequently, for example 2013’s Cyclone Phailin and 2014’s Cyclone Hudhud in Odisha. Risk coverage of the Afat Vimo package offered in the Indian state of Odisha Note: US$1 = 67.34 INR (3 March 2016) Source: AIDMI Scheme components Amount Maximum liability for damage to house 30,000 INR Maximum liability for damage to house contents 15,000 INR Maximum liability for stock-in-trade 10,000 INR Maximum liability for structure and tool 30,000 INR Maximum liability for personal accident 30,000 INR Total coverage 115000 INR Total premium (non-life) yearly 180 INR Total premium (life) yearly Varies based on age T ogether W e S tand