Costs and data key to tackling protection gap: World Bank

The World Bank’s Disaster Risk Financing and Insurance Program (DRFIP) says that to help bridge the protection gap for climate change and disaster risk financing in the developing world, solutions need to be customised to local conditions. In addition, the cost of insurance remains a barrier and the quality of data needs to be improved. The Climate and Disaster Risk Finance Executive Education Program, organised by the DRFIP in partnership with Insurance Development Forum (IDF) and the University of Oxford, also concluded that better coordination among government ministries is essential to improve financial protection. The experts noted that while the insurance protection gap in developing Asia, Africa and elsewhere remains a huge concern, the insurance sector is responding particularly in the area of parametric solutions. But a much stronger and more co-ordinated effort is needed, and access to and the use of data must be significantly improved to generate more affordable capacity, they said. “The range of financial products offered by development partners and the insurance industry to reduce the protection gap is growing. Parametric insurance solutions are widely offered by the insurance industry to protect governments and communities, sometimes facilitated by national and regional catastrophe risk pools. Multilateral development banks have strengthened their suite of tools to help developing countries better respond to crises and prepare for future shocks, such as the World Bank Group’s new Crisis Preparedness and Response Toolkit,” noted the World Bank. “In this context, public-private knowledge partnership is becoming even more essential to allow developing countries to better understand their risks and identify the best mix of financial instruments to reduce their protection gap,” it said. The World Bank and the Insurance Development Forum convened more than 30 senior policymakers from 21 countries across Asia, Africa and Latin America for a week to share knowledge, build networks, and discuss disaster risk financing instruments. The World Bank stressed the following key points raised by delegates: Disaster risk financing and insurance solutions must be customised to the country’s context and constraints. Local context is fundamental in assessing the appropriateness of instruments, and collaboration with the domestic insurance industry and global industry can provide the technical tools needed to produce empirical evidence for policy decisions. The development of the domestic financial sector and its insurance sector, and the financial and institutional capacity of the government, are key drivers of sustainable risk finance and insurance solutions; The cost of insurance is a shared concern, especially as the most vulnerable communities cannot afford insurance. The call for premium subsidies has grown in recent times, as echoed by the mayor of Freetown, Sierra Leone, who described lack of affordable premium as a major obstacle to insure her community. Data availability and quality is critical for better climate risk finance and insurance solutions. Delegates questioned the suitability of financing instruments when there is insufficient local data to tailor the approach. Delegates provided actionable solutions to improving data quality by sharing experiences of specific programs, such as strengthening public asset management. Better data ultimately helps ministers of finance and other departments make more informed policy decisions. There are growing partnerships between the industry and public sector that countries can tap into to address data gaps. Better coordination among government ministries is essential to improve the country’s financial protection. Strong coordination is needed from all levels of governments to ensure knowledge gaps are filled, objectives are understood, and roles and responsibilities are defined. This area of focus was emphasised by several participants who described the benefit of strengthening the link between ministries as a move from a siloed to a cross departmental approach of disaster risk financing. One of the country participants concluded: “These knowledge programs are important because they allow us to share experiences with other countries and to share our needs with the insurance industry. We see that in many cases we face the same challenges, and we look for similar solutions.”

Costs and data key to tackling protection gap: World Bank

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