Insuring against natural disasters

Developing and least developed countries, like Bhutan are the least able to recover quickly when natural disasters strike due to inadequate financial support and a low insurance penetration.

The obstacles to recovery efforts are added by growing climate change which causes droughts, floods, melting glaciers, rising sea levels and reduced agricultural productivity.

In 2009, a 6.1 magnitude earthquake with its epicenter in Mongar killed at least 12 people and damaged homes, government buildings, chortens, lhakhangs and dzongs in six eastern dzongkhags. Reconstruction of the damages was completed near the end of 2014.

In 2011, four western dzongkhags were hit by a 6.9 magnitude earthquake with its epicenter in Sikkim, India. At least one person was killed, 16 others injured, and over 4,000 houses were damaged.

The Rehabilitation and Reconstruction Division under the Department of Disaster Management said, “Very few houses were insured,” and added that with more insurance coverage the rate of recovery would have been much faster.

Department of Disaster is spreading awareness and encouraging people to access insurance as this would greatly mitigate the losses from disasters and contribute towards creating an economy that is more resilient to disasters. This will also serve as a protection gap.

Protection gap is the difference between economic losses and insured losses, and is generally much higher in developing countries meaning most people in these countries are financially unprotected from disasters.

Though a primarily agriculture-based economy, crop insurance is still nonexistent in Bhutan. RICBL is in ongoing talks with the Ministry of Agriculture to initiate a crop insurance policy.

Bhutan is an original member of the Vulnerable 20, a group of 20 arid, landlocked and mountainous countries who are the most vulnerable to climate change. The group was formed in October last year at Lima, Peru where the finance ministries of the member countries met. Such issues are normally undertaken by the environment, climate or energy ministers so the inclusion of finance ministers is key, in that, it is not just talking but obtaining and delivering financial resources for climate changes.

The V20 account for less than 2 percent of the world’s greenhouse emissions, and yet suffer an average of over 50,000 deaths and an estimated loss of 2.5 percent of GDP since 2010. These numbers are expected to increase exponentially by 2030 because of climate change.

The V20’s aim is to draw attention to the great need of investments that their emerging economies have in facing the impacts of climate change. The group also has a feasibility study in progress on a global risk pooling mechanism for its member countries so that resources can be shared to help members that are struck by disasters.

More recently in April this year, the Insurance Development Forum (IDF) was created by the leaders of the United Nations, the World Bank Group and the western insurance industry following a high level meeting in Washington DC with the purpose of providing insurance against climate change disasters. The IDF has pledged to help developing countries on climate change including members of the V20.

The IDF’s aims are to incorporate insurance industry risk measurement know-how into existing governmental disaster risk reduction and resilience frameworks, and to build out a more sustainable and resilient global insurance market in a world facing growing natural disaster and climate risk.

The G7 nations also announced last year their plans to increase access of developing countries to insurance.

The Center for Global Development climate impact map ranks Bhutan 62 in overall vulnerability to the impacts of climate change and 69 in agricultural production loss among the world’s 233 countries.