Climate change is a major challenge across the Pacific, which comprises geographically diverse and dispersed countries. The Solomon Islands, Tonga and Vanuatu are among the top five climate-vulnerable countries worldwide. Frequent and severe climate-induced disasters in the South Pacific have disrupted both economic progress and development gains. In the last 50 years, natural disasters have led to USD 3 billion in losses across the region. With seven of the top ten countries prone to internal displacement from extreme weather events, most Pacific islanders lack any form of safety net or protection.
In 2022, 13 new institutional members joined the Microinsurance Network’s growing list of inclusive insurance experts and practitioners. Among these, the UNCDF and Weather Risk Management Services (WRMS) have both been involved in inclusive insurance solutions in the Pacific. The UNCDF has been driving financial inclusion in the region since 2008, initially through its Pacific Financial Inclusion Programme which ended in 2021. This was succeeded by the Pacific Insurance and Climate Adaptation Programme (PICAP).
Through PICAP, the Pacific’s first digital parametric or index insurance product was launched in 2021 – in Fiji. To create the product, an insurance value chain was first developed. This includes 15 partners: four underwriters, eight local aggregators, mobile money providers, and other ecosystem partners. The UNCDF deliberately developed an insurance market in Fiji to de-risk market entry for the private sector – small and geographically dispersed markets can deter private sector interest.
Distribution across island nation-states is logistically complex and challenging, with brick-and-mortar distribution likely to be inefficient and very expensive. Digital delivery via mobile money was adopted to overcome this, making the product the first in the region to use digital onboarding. This digital-first approach has driven the product’s early success, leading to an increase in index insurance products from zero to five since launch.
| Index insurance in Fiji: A snapshot of parametric microinsurance as of 2022 |
| Launched: August 2021 |
| Risks covered: heavy wind and rainfall |
| Target beneficiaries: sugarcane, rice and copra farmers, fishers and market vendors |
| Annual total insured: USD 460 (per policyholder) |
| Annual premium: USD 46 (less than USD 1 per week) |
| Cover period: 12 months |
| Policyholders: 1,380 households (approximately 6,000 individuals) |
| Gender balance: 32%of policyholders are women |
| Future target: Over 85,000 customers by 2025 |
Source: UNCDF, 2022.
PICAP is jointly administered by the UNCDF, the United Nations University Institute for Environment and Human Security (UNU-EHS), and the United Nations Development Programme (UNDP). In line with each organisation’s aims, the Programme aims to improve local communities' resilience against extreme climate and life cycle events through disaster preparedness, and post-disaster financing. It targets low-income households and communities; micro, small and medium enterprises; co-operatives, agricultural associations and unions; and financial institutions. The scheme covers risks faced by the agriculture, fisheries and tourism sectors.
“The UNCDF has been pioneering the introduction of inclusive insurance solutions in the Pacific small island developing states (SIDS) for over a decade, more recently in climate risk insurance. Through a market ecosystem approach, we have firmly established that the private sector has a prominent role to play in addressing persistent development challenges prone to the region. These solutions can be scalable and replicated in other underdeveloped markets too.” Krishnan Narasimhan Lead Specialist – Climate Disaster Risk Financing and Insurance, and Programme Manager Pacific Insurance and Climate Adaptation Programme |
Government support has been important for the insurance scheme. A value-added tax (VAT) exemption was granted to make the product affordable. This has made Fiji the first country globally to allow VAT exemptions on parametric insurance premiums before product launch. The Fijian government also allocated premium funding for 2,000 beneficiaries under its social welfare scheme. In terms of regulatory support, the Reserve Bank of Fiji, the country’s central bank and financial services regulator, granted regulatory market approval under its FinTech Regulatory Sandbox Guidelines. These initiatives are aimed at attracting more private-sector interest.
WRMS – another new MiN institutional member – has been active in climate disaster risk financing and insurance in the Pacific too. The UNCDF commissioned WRMS to provide technical support for a weather index insurance product in 2021, as part of PICAP’s launch. This support included risk modelling, historic weather data analysis, product development and capacity-building for local insurance service providers in Fiji.
The success of a bundled indemnity insurance scheme launched in July 2017 highlighted an appetite among the Fijian population for additional types of cover. The product bundles term life, funeral, household fire and personal accident. For an annual premium of USD 25 (or just under USD 0.50 per week), beneficiaries are insured for a total sum of USD 5,000.
The pilot scheme covered around 11,000 smallholder farmers and was a success. As a result, the scheme was extended in 2018 to cover at least 80,000 social welfare recipients for an annual premium of USD 2.5 million. As of 2022, FijiCare – a local private-sector insurer – now runs the scheme.
The UNCDF promotes the use of climate risk solutions, such as index insurance, to transition from aid-based responses to market-based responses. Market-based insurance solutions can protect vulnerable populations without them relying on government aid, while offering the potential to achieve scale and self-sustainability.