The recent earthquakes in Türkiye and northern Syria in February - both the 7.8 earthquake and 7.5 aftershock at the start of the month, and the more recent 6.4 and 5.8 earthquakes in Hatay - are a stark reminder of how vulnerable humans are to natural disasters. At the time of writing, the death toll has exceeded 35,000, more than 50,000 have been injured and over 1m are receiving aid to survive extreme winter temperatures. When the final death toll is known, it is likely to be one of the worst natural disasters ever witnessed. And whilst a humanitarian response has been coordinated, questions have been raised about why a country with a history of deadly earthquakes and a government that has introduced specific policies for more than two decades was not more prepared.
As natural disasters of all kinds become more frequent, who should be responsible for reducing risk and offering protection to the most vulnerable? It is becoming increasingly apparent that the responsibility needs to be shared more widely, as recognised by the United Nations Office for Disaster Risk Reduction (UNDRR) in the Sendai Framework. It highlights that whilst the State has the primary role to reduce disaster risk, other stakeholders – including private companies – should also share the responsibility. This opens discussion around the role that insurance can play in helping vulnerable individuals become more resilient.
In recent years organisations and governments globally have increasingly shifted their focus towards an ex-ante investment in risk management and transfer, rather than a traditional ex-post emergency response to disasters. The “risk cycle” highlights the importance of reconstruction, resilience and risk prevention in helping people and communities return to normality. While disasters cannot be predicted, they can be better prepared for, especially in countries where they occur regularly. And this is a central part of the Sendai Framework. Its goal is to “prevent new and reduce existing disaster risk through the implementation of integrated and inclusive economic, structural, legal, social, health, cultural, educational, environmental, technological, political and institutional measures that prevent and reduce hazard exposure and vulnerability to disaster, increase preparedness for response and recovery, and thus strengthen resilience.” Across the world, this is being tackled in different ways.
For example, the Caribbean Catastrophe Risk Insurance Facility Segregated Portfolio Company (CCRIF SPC) helps small developing countries overcome short-term cash flow problems following major natural disasters. Its members include 19 Caribbean governments, three Central American governments, and two electric utilities companies, and it is the world’s first regional fund to use parametric insurance. This enables it to provide pay-outs quickly so that members can finance their initial disaster response and maintain basic government functions after a crisis. In total, between June 2007 and October 2022, they have paid out almost USD 260m following natural disasters, including more than USD 144m for tropical cyclones, over USD 49m for earthquakes and around USD 66m for excess rainfall events.
Other countries that are vulnerable to natural disasters, such as earthquakes, take policy measures. Mexico have been refining their building codes over the last 70 years to incorporate state-of the-art knowledge on earthquake-resistant building techniques, because many earthquake-related deaths result from people being trapped or crushed by collapsed, often poorly constructed, buildings. However, it has been noted that compliance of these codes is often an issue for two main reasons: users of the code are not familiar with the concepts and technologies, or the parameters prescribed by the codes are not clear. In addition, widespread corruption in some of these countries means some construction companies get away with non-compliance with very few consequences. This was revealed to be the case in Mexico following the deadly 2017 earthquake in Mexico City.
In Türkiye, these types of measures have been in place for more than two decades. Following the Marmara Earthquake in 1999 significant policy changes were made, moving from a reactive to a proactive disaster policy. Not only was there a concerted effort to educate people and create a “disaster-sensitive life culture,” but new laws were introduced to incorporate resilience and planning into society. In 2012, the “Restructuring of Areas Under Disaster Risk Law” was introduced to ensure high-quality new settlements and to transform the existing weak structures that did not meet the new legislation.
Additionally in 2000, the government established the Turkish Catastrophe Insurance Pool (TCIP or DASK in Turkish), a compulsory insurance for private dwellings within municipal boundaries in Türkiye. The coverage includes material damage to buildings or dwellings caused by earthquakes and natural disasters arising from an earthquake, such as explosions, landslides, and tsunamis. There are several things it does not cover, however, such as loss of profit or rent, business interruption and bodily injury or loss of life. As such, there are limitations to how quickly people can rebuild following a disaster based solely on accessing the TCIP.
Despite these measures, there is frustration that opportunities have been missed to prevent the devastation of February’s earthquake. Whilst TCIP contributions were compulsory, ratings agency AM Best noted that there is no legal penalty for not being covered, and as such, insurance penetration rates were very low (around 52%) in the southeast regions of the country. An estimated USD 4.6 billion was raised through the TCIP, but despite Türkiye having some of the best building standards in the world on paper, the reality is different. As a result of violations, and periodic “construction amnesties” that allowed building companies to pay a fee to operate without a safety certification, it has since been revealed that many of the buildings damaged in the earthquake were below standards.
All this highlights the need for alternative ways for vulnerable people to protect themselves against these increasing natural disasters, particularly if they feel they cannot trust their governments to do so. Humanitarian aid, whilst vital and helpful, only provides short-term financial support following the immediate crisis, and it can often take years for people to rebuild their lives. Even when coupled with development aid, it can come slowly and sporadically (if at all) making it hard for people to plan. And, for poorer populations without financial education, it can be hard to access. In 2018, the estimated current economic average annual loss (AAL) because of natural disasters in 77 of the world’s poorest countries stood at around USD 29 billion. Yet only USD 6 billion (12%) of current losses are met by humanitarian aid and USD 2 billion (5%) are covered by insurance, leaving a huge shortfall that must be met by the people directly affected by disasters and their governments.
Microinsurance could, in part, help to plug this gap, and it has been identified by the UNDRR as a valuable support mechanism, not only to help people recover more quickly in the short term, but also to support a more robust and resilient long-term recovery. It has been shown that index-based microinsurance can help households recover more quickly from extreme events by providing cash through indemnity payments, helping them access credit and removing the need for them to sell livestock, crops or other means of livelihood at any price just to make money to survive.
Microinsurance products are already available to those in areas at high risk of climate-related natural disasters. For example, in Peru Pacífico Seguros, offers microinsurance products for microentrepreneurs and small businesses to protect assets – including content, merchandise, equipment and tools - from catastrophes such as theft, fire and natural disasters. In Colombia, Blue Marble, along with local farmers and Nespresso coffee specialists have developed Café Seguro which provides coverage for excess rainfall and drought during the developmental stages in which coffee is most vulnerable to climatic shocks. This provides financial stability to the farmers, encourages them to invest in sustainable agronomy and bolsters the supply chain’s resilience. And in Guatemala, MiCRO offers an index-based microinsurance product that covers the business against any interruption of the productive activity against excessive rainfall, severe drought, and earthquakes. After a 12-month pilot programme 50% of clients had received at least one pay-out due to drought or excess rain events.
As natural disasters are likely to increase in frequency and severity, it is crucial that the response moves to managing the risk of disaster rather than the disaster itself. And there is much evidence that the private sector can support this by offering expertise in analytics and risk management to help plug protection gaps. But this requires the will of all stakeholders to come together to find the solution. This is usually strengthened after a crisis, so we can only hope that progress comes from such terrible and devastating events.