Building resilience through Climate Risk Insurance for MSMEs

Thursday, April 23, 2020

The coronavirus pandemic didn’t stop the regional event Building Resilience through Climate Risk Insurance for Micro, Small and Medium Enterprises (MSMEs) from going forward – as a series of webinars.

You can download all the presentations and watch the recordings of all four webinars here.

The four sessions - co-hosted by GIZ RFPI’s Mutual Exchange Forum on Inclusive Insurance (MEFIN), Pioneer Insurance and the MiN - featured a total of 12 presenters and moderators, and were attended by 133 supervisory authorities, government delegates, industry experts and development agencies from 18 countries. 

Session One: What is climate risk?

Undersecretary Blesila A. Lantayona from the Philippines Department of Trade and Industry (DTI) pointed out that of the one million businesses in the country, 99.5% are MSMEs. Despite the Philippines being one of the most disaster-prone countries in the world, only 11% of MSMEs have NatCat insurance. This highlights the important of Negosyo Centers (one-stop-shops to help entrepreneurs set up and run their business) to promote risk financing mechanisms.

Dr Antonis Malagardis, Program Director of GIZ RFPI Asia, singled out MicroBiz Protek - a Disaster Risk Insurance (DRI) product for MSMEs - as an example of affordable microinsurance which provides fast-response liquidity in case of a disaster. This type of insurance is an essential part of an integrated approach for Disaster Risk Management (DRM) and risk transfer for MSMEs, he said.

Key takeaways from Session One included:

  • insurance can help transfer risks caused by COVID-19 business interruption, similar to extreme weather events
  • data on the impact of COVID-19 on MSMEs can be used to develop relevant products similar to Climate Risk Insurance (CRI)
  • DRI should be seen as part of an integrated approach to DRM
  • further research is needed on why so few MSMEs have NatCat insurance

Session Two: Climate Risk Insurance data requirements and modelling

Dr Claire Souch of the Insurance Development Forum (IDF), said that parametric insurance must be objective, transparent and consistent, and correlate to a defined risk. Data must be real-time and close to the risk location - a problem in the Philippines, for example, where weather stations are few and far between. “It’s really important we get to a point where all sides of the transaction have a common understanding of the risk,” said Dr Souch, citing the Oasis Open Source Loss Modelling Platform as an example of an open platform that allows anyone to examine hazard, vulnerability and exposure to calculate risks and losses for risk pricing.


KatRisk MD Stefan Eppert said that cat modelling can be used to estimate probable losses caused by disasters and enable (re)insurers to create products to transfer risks such as illiquidity and bankruptcy. Cat models can also help to plan for post-disaster recovery and response activities, he said, although advanced toolsets that are available in developed countries should be made accessible also for emerging markets to enable lower premiums and better-informed product development.

Key takeaways from Session Two included:

  • open data and models are valuable for democratising risk, increasing transparency, reducing redundant work, enhancing efficiency and reducing costs
  • co-development of risk models is essential to ensure local knowledge is embedded in the models and that there is common understanding of the risk
  • cat and risk modelling can help policymakers prioritise different options for climate adaptation
  • toolsets available in developed countries should be made available also for the emerging markets

Session Three: Developing insurance for MSMEs

How can microinsurance help MSMEs become more resilient? Dr Jaime Aristotle B. Alip, the founder of CARD MRI, said that claim settlement should be accelerated via the use of technology and digital banking; easy premium payments should be promoted; and more risk managing financial services should be developed. However, it takes time for clients to adapt to using cellphones and chatbots for insurance.

Jonathan Batangan, First VP and Group Head of Cebuana Lhuillier Insurance Brokers (CLIB) pointed out that MSMEs play a critical role in the economy of the Philippines. In CLIBs experience, insurance for MSMEs must be affordable, accessible and relevant; client onboarding must be simple and quick; mandatory selling with distributors works to create initial traction; and multi-stakeholder collaboration - including regulators - is key.

Mohammad Ali Ahmed, CSO and ED of EFU Life Assurance Ltd said MSMEs in Pakistan face multiple challenges including insufficient collateral to demonstrate equity; lack of proof for banks to verify; poor financial planning, bookkeeping and data management; low competitiveness; and inadequate financing. There is a clear need for business interruption (BI) and NatCat insurance, better business management skills and knowledge of insurance.

Pakistan’s vulnerability to multiple extreme weather events illustrates how dependent MSMEs are on agricultural production, he said. Yet insurance penetration in the agricultural sector is low, there is limited knowledge of agriculture insurance and reluctance of insurers to target this segment. There is a government-led Crop Loan Insurance Scheme which covers calamities like excessive rain, flood and drought - but the scheme is not demand-driven and lacks innovation.

Key takeaways from Session Three included:

  • insurers must be responsive to the needs of MSMEs
  • timely claim settlement is proof of responsiveness
  • there is a vital need for BI insurance products for MSMEs
  • a regulatory framework for MSME insurance is essential for developing microinsurance for MSMEs
  • technology promotes the uptake of insurance in the low-income sector

Session 4: Micro vs. meso vs. macro insurance solutions: are regulators ready?

The fourth and final webinar aimed to identify key stakeholders for managing climate risks and improve coordination to promote inclusive insurance. Hannah Grant, Head of the Secretariat at A2ii, set the scene by highlighting the NatCat protection gap - US$280 billion in the last two years alone. She identified three solutions: macro-level where the government is the policyholder; meso-level aimed at protecting financial service providers; and micro-level risk transfer solutions to protect low-income individuals and MSMEs directly.

Michael F. Rellosa, ED of the Philippines Insurers & Reinsurers Association (PIRA), highlighted  Catastrophic Peril Cover for earthquakes, typhoons and floods, and other initiatives including insurance for coastal ecosystems; catastrophe facility; agriculture insurance; CRI and the V20 Initiative. Scaling up the Philippines microinsurance sector requires up-to-date, granular data on risks and losses; modeling to calculate and correctly price risks; a regulatory sandbox to incubate viable products; and pilot launch and testing to inform product development.

Syed Nayyar Hussain, Director of the Insurance Division at the Securities & Exchange Commission of Pakistan (SECP), presented the National Disaster Risk Management Authority (NDMA), a government-led mechanism to finance DRM, promote preventive measures and coordinate DRM-related institutions. Alongside the NDMA, the public not-for-profit National Disaster Risk Management Fund (NDRMF) provides grants for DRI and CRI solutions; the National Financial Inclusion Strategy (NFIS) promotes inclusive insurance and financial inclusion; and the  National Crop Insurance Scheme, Crop Loan Insurance Scheme, Livestock Insurance Scheme and Area Yield Index Insurance, all of which are subsidised by either the federal or provincial government.

Key takeaways from Session Four included:

  • a regulatory framework is needed to develop microinsurance and CRI solutions for MSMEs
  • there’s a risk that the many micro, meso and macro level insurance solutions being developed might cause harmful duplication and overlaps
  • the Philippines needs a regulatory sandbox to ensure more demand-driven product development