Holistic risk management and smart partnerships
Working in partnership to deliver inclusive insurance can increase resilience and mitigate the economic losses caused by climate change, write MiCRO’s Leticia Gontijo Furst Gonçalves and Iker Llabres. By courtesy of the Micro Insurance Network.
Unpredictable extreme weather events are wreaking havoc, driving poverty and intensifying disaster risks for communities around the world.[1,2] Vulnerable people are caught in a vicious cycle of poverty because they are more exposed to risks and ill equipped to deal with them. The problem is compounded because most losses in emerging economies are uninsured.
Sustainable Development Goal (SDG) 13 aims to combat climate change and its impacts. Promoting holistic risk management strategies – including appropriate risk identification, transfer, mitigation, preparedness and postdisaster reconstruction – will help achieve SDG13. Inclusive insurance is one essential risk transfer tool that can mitigate the economic losses caused by climate change, increase the resilience of vulnerable people and close the protection gap.
Public-private partnerships (PPPs) are widely promoted as a way to directly or indirectly improve climate change risk management. However, in the course of its work in emerging economies, MiCRO has encountered poor PPP coordination, leading to inefficient investments and duplication of efforts. MiCRO’s innovative organisational approach aims to improve coordination and close the protection gap by supporting holistic risk management and by entering into smart partnerships.
Insurance is only one piece of the puzzle
MiCRO creates holistic risk management solutions with two components. Firstly, a risk transfer mechanism is designed for the specific conditions and needs of each intervention, for example, using microinsurance, meso-insurance or other risk transfer mechanisms such as pooling. The second component is the Value Added Programme (VAP), which increases customers’ resilience, productivity and livelihoods. In order to offer the VAP, MiCRO connects existing initiatives with organisations working on disaster risk prevention and preparedness.
In Central America, MiCRO and its partners currently offer the first index-based catastrophe microinsurance for small and microentrepreneurs to cover business interruption caused by excessive rainfall, drought and earthquakes in Guatemala and El Salvador. Unlike other weather insurance products, business interruption includes disasters that reduce sales or raise costs, meaning both ‘agro’ and ‘non-agro’ entrepreneurs can be protected against indirect losses.
The level of payouts ranges from small amounts for medium-sized events to large payouts after a catastrophe. The product is commercialised and bundled with loans through banks and financial institutions. In November 2016 MiCRO, Aseguradora Rural and Banrural launched Esfuerzo Seguro (‘Safe Effort’) in Guatemala. This was followed in June 2018 in El Salvador by Produce Seguro (‘Produce Safely’), a joint project by MiCRO, Seguros Futuro and Banco de Fomento Agropecuario. By July 2018 more than 6,700 clients were protected by Esfuerzo Seguro – 53% of them women and 70% farmers. Almost half (49%) had received at least one pay-out, mainly due to drought.
However, risk transfer is only one piece of the risk management puzzle. MiCRO and its partners also offer a VAP that introduces clients to simple messages and tools to improve education and awareness of mitigation, adaptation, impact reduction and early warning. MiCRO works closely with local and international partners to avoid duplication and to ensure existing interventions reach clients, acting as a bridge to trustworthy and lasting partnerships.
The VAP is not about MiCRO offering extra services but instead aims to connect stakeholders that can benefit policyholders. For example, MiCRO works closely in Guatemala with the National Coordinator on Disaster Risk Reduction (CONRED) and the World Food Programme (WFP). The VAP was initially launched as a pilot with two main components: firstly, a ‘prevention route’, which clients follow in order to receive a 72-hour emergency kit; and secondly, Disaster Risk Reduction (DRR) fairs where clients and their families can learn about their risk exposure and how to manage it. Both components were designed in collaboration with CONRED in line with its strategy to promote resilience, and the product is accompanied by a social marketing campaign.
MiCRO recently partnered with WFP Guatemala to give Esfuerzo Seguro clients access to AgriUp, an online platform designed by WFP to provide weather alerts, farming advice and nutrition tips. This is another example of MiCRO leveraging existing relationships to benefit thousands of clients at minimal additional cost.
Most of the funding to market test the VAP came from the Multilateral Investment Fund of the Inter-American Development Bank (IADB/FOMIN). MiCRO’s medium- and long-term aim, however, is for local partners to understand the benefit of including the costs in their marketing and to use disaster risk reduction as a competitive advantage.
Smart partnerships are key Smart partnerships are not only essential for the SDGs, but they are critical for MiCRO’s business model. MiCRO itself is a true publicprivate partnership. Current shareholders include the Climate Adaptation Platform (CAP) managed by KfW on behalf of the Swiss Development Corporation (SDC), Mercy Corps, and Fonkoze, one of the largest microfinance institutions in Haiti. The Central American Disaster Microinsurance Expansion (CADME), a programme executed by MiCRO, currently has the support of the SDC and Swiss Re as a strategic partner. In the past, the programme received grants from the Multilateral Investment Fund (MIF) managed by the Inter-American Development Bank (IADB) and Australian Aid.
MiCRO’s pioneering, collaborative approach to reducing the impact of climate change is already showing promising results. By designing and implementing holistic solutions and building smart partnerships, this work contributes to the achievement of the SDGs and supports capacity building for market initiatives to close the protection gap. Expanding into new countries and designing new products are in line with the organisation’s commitment to ensure that more people are protected against the effects of extreme weather events.
MiCRO could not do any of this by itself. Smart and strong partnerships between the private and public sectors are key to build resilience, reduce costs, avoid duplication and achieve tangible results.
 IPCC, Climate Change 2013: The Physical Science Basis, (IPCC, 2013). Available at http://www.ipcc.ch/report/ar5/ wg1/ (accessed on 31 July 2018).
 Solveig, W., McCord, M., Wiedmaier-Pfister, M., & Biese, K. Inclusive Insurance and the Sustainable Development Goals, (Eschborn: GIZ GmbH, 2017).
 Bevere, L., Schwartz, M., Rajeev, S., & Zimmerli, P. SIGMA 01/2018, (Zurich: Swiss Re Management Ltd., 2018).
 Roth, K., & Radermacher, R. A Practical Guide to Impact Assessments in Microinsurance, (Luxembourg: Microinsurance Network, 2014).
 Churchill, G., & Matul, M. Protecting the Poor: A microinsurance compendium. Chapter 4 (Vol. II), (Geneva: International Labour Organization (ILO), 2012).
 Over 250 families have participated in the two DRR Fairs done so far. This video provides an idea of the DRR Fairs. Available online at https://www.microrisk.org/ central-america/second-disaster-risk-reduction-fair/ (accessed 31 July 2018).