‘It’s A Game Changer’: Partners await launch of Pacific Region’s first-ever parametric insurance scheme

Rishi Ram was on the verge of harvesting his rice crop when Tropical Cyclone Ana tore through Northern Fiji in January 2021.

With little warning, the strong winds and heavy rain levelled his rice, vegetable and livestock farm and damaged his home.

Farming was the only source of income for Mr Ram and his family of eight, who live in Dreketi, a small district on Vanua Levu, Fiji’s second largest island.

The 50-year-old farmer left his teaching job this year to focus full-time on farming despite the yearly risks of cyclones and other natural disasters.

The damage caused by Category 2 TC Ana, just over a month after Category 5 TC Yasa, led to financial hardships for the family, stemming from income loss and high repair costs.

Mr Ram was faced with the impossible choice of repairing his home or investing whatever little money he had left into rebuilding his farm.

“I gave first priority to repairing, rebuilding and investing back into my farm while leaving my house in a partially damaged state,” he said.

Mr Ram is one of many rice farmers in Dreketi to have suffered from the increasing frequency and strength of cyclones and other extreme climatic events in the Pacific region.

The Fiji Rice Limited reported that farmers in the Northern Division incurred FJD$350,000 (~US$171,700) in losses due to tropical cyclones Yasa and Ana alone.

These farmers and other vulnerable groups such as women, youths and persons living with disabilities have little financial capacity to cope with the economic shocks that follow a cyclone.

For instance, there are no climate disaster risk insurance instruments that individuals, businesses, organizations, cooperatives, or others in the Pacific region can access.

This is concerning given that the UN considers the Pacific Islands as “among the most vulnerable in the world facing many natural hazards, such as cyclones, earthquakes, tsunamis and volcanic eruptions.”

Moreover, Fiji is ranked the 12th most hazardous country in the world by World Risk Index, and the frequency of cyclones and floods are expected to increase in the coming years due to climate change.

To address this persistent development challenge, the United Nations Capital Development Fund (UNCDF), in partnership with the United Nations University Institute for Environment and Human Security (UNU-EHS) and the United Nations Development Programme (UNDP) launched the Pacific Insurance and Climate Adaptation Programme (PICAP).

The initiative aims to improve the financial preparedness of Pacific households, small businesses, cooperatives and other organizations at the micro and meso levels.

PICAP will pilot, test and scale climate disaster risk financing instruments like parametric insurance that will offer immediate post-disaster payouts to those insured.

Working with Fijian private insurance companies, digital service providers and intermediaries such as cooperatives and associations, the Programme is developing index-based micro-insurance products targeting farmers, fishers, small businesses, market vendors and other vulnerable groups.

The insurance product will provide immediate cash liquidity post disasters to beneficiaries and will also support Fiji and the region’s efforts to build financial resilience in the face of natural disasters.

The Fijian Attorney-General and Minister for Economy, Aiyaz Sayed-Khaiyum, spoke about this at the recent virtual Leaders’ Summit on Climate convened by the United States Government.

“We are piloting a Parametric Climate and Disaster Risk Micro-Insurance Product which we hope can be scaled up in Fiji and to other small island developing states,” Mr Sayed-Khaiyum said.

As the concept and solutions are new to the region, the product will be trialed in Fiji and after establishing proof of concept and robust results, replicated and scaled to other Pacific countries.

The programme has been conducting a series of ‘ideation workshops’ with key stakeholders who have been identified as partners for implementation.

The PICAP team is also engaging with the Reserve Bank of Fiji (RBF) on regulatory aspects of the programme and the products that are planned for roll-out.

“The ideation workshops with potential grantees and partners is to lay a solid foundation for building strong partnerships during the implementation of the programme,” said PICAP Programme Manager, Krishnan Narasimhan. “It is a learning opportunity for all of us as we unpack the challenges of meaningfully reaching vulnerable populations and deliver benefits of climate and disaster risk financing and insurance instruments like parametric insurance.”

The feedback from partners such as Save the Children Fiji, Consumer Council of Fiji and the RBF has been positive so far, with many appreciating the opportunity to engage directly with the programme team.

Save the Children Fiji’s Chief Executive, Shairana Ali, said the workshops provided an opportunity to “gain a better understanding about parametric insurance and its value for under-served and vulnerable communities in Fiji.”

“Therefore, by working together with stakeholders, we see parametric insurance as a game changer for such communities as it will promote resilience and provide much needed financial assistance to communities,” Ms Ali added.