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Participation in the 2nd Regional Conference on Risk Transfer and Micro-Insurance for Resilience Building in the IGAD region

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Date and time: 
Thu, 2017-05-18 12:00

Promoting Innovative Risk Financing in the Horn of Africa:

Progress and Way Forward

Khartoum, Sudan

17 - 18 May, 2017

 

Dr. Stephen Mureithi, a Lecturer at the Department of Land Resource Management and Agricultural Technology (LARMAT) and Prof. Jesse Njoka, Director, African Drylands Institute for Sustainability (ADIS) are participating in the 2nd Regional Conference on Risk Transfer and Micro-Insurance for Resilience Building in the IGAD region in Khartoum, Sudan.

Background

Natural catastrophes such as drought and floods, may affect all levels of the society in a geographical area, but the poor are usually the people that suffer the most. Droughts and floods are constant threats to farmers' crops and livestock as they (and their families) are directly affected by crop failures or livestock losses due to lack or excess of rainfall. This immediately translates into loss of income and assets, which often leads to increased household vulnerability and traps people into the vicious circle of poverty and inequality.

For decades, the financing of disasters in developing countries has relied on a reactive approach, consisting of the diversion of funds from domestic budgets and extensive financing from international donors.  Such ‘ex post’ funding approaches are not cost effective and the result is most often insufficient. Moreover, they provide no incentive for proactive risk reduction measures such as low-risk cropping systems, improved territorial planning, higher construction standards, effective coping mechanisms, etc. Access to micro-insurance facilities is increasingly becoming relevant for both the vulnerable poor and humanitarian sector. Relief and compensation efforts are useful, but not enough; they do not fully compensate or adequately help the affected households to recover all the incurred losses.

Millions of people in the Horn of Africa do not have access to micro-insurance and other risk transfer services. These people are typically poor and highly vulnerable to disasters. Lacking the capital savings and capacity to recover from disasters unaided, when catastrophe strikes they are unprepared and are left to rebuild their lives with the aid of whatever assistance is extended to them. There is a commonly held misconception that the poor of society are untrustworthy as clients of insurance, and are unable to meet payments. Reality has proved that this is not always the case through positive experiences in the fields of micro-insurance and risk transfer in Asia. It is the experts' firm belief that if the poorest would have the opportunity to reduce their exposure and mitigate the risks they are facing through disaster insurance, this would benefit the entire society at all levels.

The provision of low premium micro-insurance policies makes insurance accessible to the majority of society's poorest.  But how are insurance companies able to provide such low premiums? The key to low premiums is the economic concept of risk transfer and spreading. When individuals in several communities in different geographic locations all take out micro-insurance policies, the risk associated with administering each policy is spread across a large number of people and regions. The likelihood that all of the regions would be hit by a disaster and that everyone would be claiming their due simultaneously is reduced, which enables the policies to be underwritten by the insurance companies at such low premiums. Additionally, the low-income policyholders are insuring few assets at a low value, so even in a disaster situation, claims are not exorbitantly high.

With the increasing number of disasters over the past decades, there is a growing interest among the public and private sectors, and development practitioners to develop sustainable risk transfer mechanisms and insurance products, especially for the vulnerable communities in developing countries. According to scholars, risk transfer is the process of shifting the burden of financial loss or responsibility for risk financing to another party, who typically is in a stronger financial position to pay the loss than the insured, examples would be through insurance, reinsurance, legislation, or other means. Thus, insurers can better manage pure risks than individual insured due to the application of central limit theorem and the law of large numbers. However, risk transfer mechanism and insurance markets in the entire Intergovernmental Authority on Development - IGAD region[1] are undeveloped, and coverage for natural hazards and risk is extremely limited.

Against this situation, IGAD organized in September 2016 in Kampala a first Regional Conference on Risk Transfer and Micro Insurance for Resilience Building in the IGAD region. The 2 days meeting brought a wide range of actors from the region, including representative from the public financial institutions, the private sector, the development partners and the civil society. Overall this first conference led to the following output:

  • A better understanding of risk transfer and micro-insurance in the IGAD region, including key challenges and opportunities for developing these financial mechanisms. One of the main lessons was also that risk transfer mechanisms must be understood as contributing to a broader strategy on Disaster Risk Reduction, and they require to be linked up to other DRR activities.
  • Networks were developed among representatives from different organizations including Government Institutions, International Organization, the Private Sector and the Civil Society.
  • South-South cooperation partnership has been initiated between the Government of Sudan and the Government of the Philippines, in order to learn further from Philippines’ experience in the development of risk transfer mechanisms and in implementing similar strategies/programmes in Sudan. At the end of the conference, discussions had also taken place between the Government and Uganda and the Government of Philippines on risk transfer services.

Based on these outputs, the different stakeholders who participated at the Conference agreed on the following next steps:

  • To create a task force in each IGAD Member States, to lead a strategy and effort on developing micro-insurance and other risk transfer mechanisms in their country.
  • To develop a policy and programme framework on risk transfer and micro-insurance in each member state.  This would involve as a first step, to make a thorough diagnosis of the situation in each of those countries.
  • IGAD should take the lead to support the Member States in this effort and continue to promote knowledge sharing, partnership, South-South cooperation and capacity building at regional level.

Goals

The main goal of the 2nd Regional Micro-insurance Conference is to define how to implement the recommendations formulated during the first regional conference in Kampala and to define a road map to foster the dissemination of risk transfer services in the region.

 

Objectives

The specific objectives of this conference are:

·         To explore into details the key elements to successfully disseminate risk transfer services in the region; and

·         To define institutional arrangements, roles and responsibilities for the development of risk transfer in the region.

 

[1] Djibouti, Ethiopia, Kenya, Uganda, South Sudan, Eritrea, Sudan and Somalia

Expiry Date: 
Thu, 2017-05-18 12:00
Contact Person: 

Prof. Njoka and Stephen Mureithi

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