Insurance for low income and MSMEs
PARAMETRIC insurance for micro and small business was a no-go area for local insurance companies until the UN Capital Development Fund (UNCDF) came into the picture with its pilot parametric insurance initiative for low income communities, cooperatives and Micro, Small and Medium Enterprises (MSMEs) in 2021.
Now, under its Pacific Insurance and Climate Adaptation Programme with the theme “Leaving no one behind in the digital era”, UNCDF has rolled out parametric insurance cover for a wide range of natural disaster events, covering more than 11,000 households and protecting more than 55,000 individuals in Fiji, Tonga, Vanuatu, Samoa and Papua New Guinea.
“When we started, it was a wind speed cover product tagged to a category one, category two cyclone, and there were no trigger during that pilot phase, so there were no payouts during that cyclone season,” UNCDF Inclusive Insurance Solutions Hub co-ordinator Akata Taito said in an interview with
“And policy holders came back — because we were getting feedbacks from policy holders, from aggregated partners — and they said look, if we are continuing with cyclone cover, we’re paying premium and we’re not getting anything in return.
“But we are being affected by floods.
“So based on those discussions with them and with our risk modellers, we made enhancements to our risk products. And right after we made those enhancements to include excessive rainfall, launched in September and in January, we had two trigger events (in Fiji) so there was a payout.”
This, she said, has renewed interest from target communities, who are mostly rural-based farming communities, market vendors and micro enterprises mostly run by women. UNCDF works with local insurance companies to help them offer parametric insurance services, an area that they traditionally did not do business in.
“The risk modeling is something that insurance companies need the capacity and technical support to be able to look into this kind of risk calculations.
“And that’s why we engage independent partners but also it’s a must when we talk about parametric insurance that there has to be independent partner from the insurance company to monitor the track of the cyclone and they can do their own risk calculation but there has to be an independent partner to monitor the trigger points.
“So whenever the trigger happens, they communicate it to the insurance company, the insurance company then verifies, then they make the payout,” Ms Taito said.
UNCDF also provides grants to insurance companies for their awareness programs.
“We come in to de-risk the market.
“De-risking in the sense that we provide this necessary support for the insurance companies to be able to look into vulnerable groups, low income groups.”
Ms Taito said in Fiji, competition had picked up between the two companies offering parametric insurance covers.
“Sun Insurance is offering wind-speed and excessive rainfall cover (to groups) and Tower Insurance is offering a wind speed products (to individuals) but because there is so much competition happening, Tower Insurance is now trying to bring in an excessive rainfall product.”