Nepal’s Index Based Flood Insurance (IBFI) pilot shared in Climate and Disaster Risk Insurance (CDRI) training

सोमवार, डिसेम्बर 12, 2022

By Bikram Rana, Project Manager Index Based Flood Insurance, Practical Action in Nepal and Dip Pandey, CEO, Shikhar Insurance

November 2022

What is Climate and Disaster Risk Insurance development training?

Climate and Disaster Risk Insurance (CDRI) training is a product development training course. The course helps to understand the spectrum of solutions offered by innovative climate and disaster risk insurance products as an essential element of a comprehensive risk management strategy. Participants are introduced to the process of product development as well as tools and models relevant for climate and disaster risk analysis, insurance product design and pricing.  

Dip Panday, CEO of Shikhar Insurance Company Limited (SICL), and Bikram Rana, Project Manager of Index Based Flood Insurance and Flood Resilience Programme of Practical Action in Nepal, participated in the Climate and disaster Risk Insurance (CDRI) development Training organized by the Frankfurt School of Finance and Management and InsuResilience Solutions Fund in October 2022. The blog details out key learnings from Nepal’s IBFI pilot that was shared in the training.

Training Banner (Source: Frankfurt School of finance and management website)

Nepal’s IBFI sharing in CDRI training

Dip Panday CEO of SICL was one of the panellist for: What is the relevance of C&D risk insurance in providing financial protection against climate risks? discussion. The discussion was moderated by Fatma Dirkes (Vice President at the Frankfurt School of Finance & Management).

Dip highlighted how weather index insurance (WII) started in Nepal and SICL story in taking forward the WII to cover apple in Jumla. The IBFI is first of its kind in Nepal. Dip elucidated to build trust of client towards insurance, insurers need to be accountable in paying out to the clients on agreed terms.”  Insurance company also need to conduct activities to improve the financial status of poor and vulnerable people so that they have access to insurance.

Dip Panday CEO of SICL during panel discussion (Credits- Bikram Rana/ PA)

Bikram Rana, Project Manager for Practical Action in Nepal’s Flood Resilience Programme and Index Based Flood Insurance (IBFI) project presented the Flood Resilience Program and IBFI as a part of a case story where CDRI is being used in Nepal.

Bikram highlighted the Flood Risks in Nepal and the relevance of IBFI and the Flood Resilience Measurement Framework of Zurich flood resilience alliance (ZFRA) as the integrated flood management approach and the vision of the ZFRA: Floods have no negative impact on people and business’s ability to thrive.

Bikram Rana presenting on IBFI pilot in Nepal (Source: twitter/ your_bikram)

Funding for climate-smart risk-informed development with a focus on flood resilience has increased and is equitably disbursed. Laws, Policies, Plans and Strategies for climate-smart risk-informed flood resilience are implemented. The climate smart risk informed flood resilience should become a normal practice in development programs/projects.

Index Based Flood Insurance and Climate Smart Risk Informed Flood Resilience Practice linkages in Nepal

IBFI piloted in Karnali has come to a pay-out stage after the flood hit the agreed indices. The key features of the project making it unique and innovative are a pre-defined, pre-agreed Index based that links science with the community, is simplified and reduces administrative hassle, involves the private sector (Shikhar Insurance company limited) and micro institutions (cooperative), and develops strong local ownership. Area and beneficiary-focused products play a crucial role to increase uptake (e.g. Need-based products – IBFI and community-friendly digital solution contributed to enroll beneficiaries in a short period with no difficulties).

Olga during her presentation in CDRI training (Source: twitter/ your_bikram)

We designed the IBFI product and submitted to Insurance Regularity Authority of Nepal to approve the design as an insurance policy, we got the conditional approval on 14th July 2022. This was in the mid of monsoon giving us little time to market. Despite of the less time we reached to 12 cooperatives holding group policy for the approved IBFI policy whereas the target of the project was to reach 12 Cooperatives.

Asian Disaster Preparedness Center (ADPC) funded “Parametric Flood Insurance for Climate Vulnerable Agriculture in Western Nepal to expand this product in the lower Karnali, which provides an opportunity to expand the project in additional communities at risk. Sharing and orientation of project modality at provincial, local and federal level, media attraction on the project approach and methodology. Demand for covering to rest of the community is also a success factor.

The proximity to flood and the features of the IBFI product has increased the trust in insurance among beneficiaries and beneficiaries enrolled in the product by paying 100% full premium as well and they wish parametric product for other peril (wind hazard) as well.

We also established a monitoring station in Aurahi river, outside of the existing Flood Early Warning System (FEWS) polygon, together with the Office of Hydrology and Meteorology, that will help strengthen the national database system. Further, the modality of the IBFI is parametric based and with a platform like EIGER, it has added a new dimension to the insurance sector in Nepal.

Learnings from Nepal pilot

A few tips for training participants from project experience in implementing parametric Insurance are:

  • Participatory Integrated flood management approach is the key to building flood resilience.
  • The hydrological data and contextual information are essential in Flood risk modelling. The risk modelling result is not to make the insurance product design complex, it should be used to simplify the complexities, understandable by farmers and regulators.
  • Insurance in a standalone does not reach the last mile poor, a combination of interventions to diversify the livelihoods of poor people engaging grass root organizations (CDMC, Cooperatives) helps the poor to access insurance.
  • Orientation to farmers, CDMC, and Cooperatives on disaster and Disaster Risk management helps people to understand the different intervention needs for resilience and insurance needs.

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