Early Positive Impact of Parametric Insurance Shows the Way Forward

  • February 13, 2023

  • Suva, Fiji

Krishnan Narasimhan
Global Lead Specialist (Climate and Disaster Risk Finance) and Programme Manager,
Pacific Insurance and Climate Adaptation Programme


Development initiatives in the Pacific, like in many parts of the world, can often take years before showing visible, measurable impacts. This was also the premise when the UN Capital Development Fund (UNCDF) designed the Pacific Insurance and Climate Adaptation Programme (PICAP or the programme) - the primary short-term objective being developing market systems to facilitate immediate cash liquidity to beneficiaries affected by extreme weather events like cyclones, heavy rainfall, droughts and more. The longer-term objective was to ‘build financial preparedness and resilience of Pacific households, communities and small businesses.’

The Programme is jointly administered by UNCDF, the UN University Institute for Environment and Human Security (UNU-EHS) and the UN Development Programme (UNDP). The programme is supported by the Governments of New Zealand, Australia, the India-UN Development Partnership Fund administered by the UN Office for South-South Cooperation (UNOSSC) and the Government of Luxembourg.Inthe first few days of January 2023, Fiji, especially the western division, experienced heavy rainfall resulting in a trigger payment under the parametric microinsurance product designed and developed by PICAP and offered in the market through private sector local insurers - FijiCare and Sun Insurance.. Parametric insurance offers the advantage of claim payments to beneficiaries based on pre-defined triggers (windspeeds and/or rainfall levels) without the need for on-site verification of loss and damages that is a requirement under conventional insurance – known as indemnity products.

However, to establish the claim trigger and confirm the extent of the pay-outs, there is a process. First, the confirmed meteorological data provided by the responsible authorities, in this case the Fiji Meteorological Office, must be received and verified by the independent index monitoring agent - in this case India-based Weather Risk Management Services (WRMS). This data can also be cross-referenced with remotely sensed satellite and other sources to establish the trigger event. Thereafter the insurance company must verify those eligible to receive the claim pay-outs, confirm that their bank accounts and/or mobile wallet accounts are active and process the payment. All this can take time. And this was the first instance of any parametric insurance claim payment in the history of Fiji, PICAP being the first of its kind initiative. The initial pilot product (cyclonic storm wind only) was introduced in 2021 and was later improved to include rainfall triggers in 2022, based on client and partner feedback.

By January 31, 2023, FijiCare, the lead insurer, had completed the due processes and channelled all payments either through Digicel My Cash or Vodafone M-PAiSA, the two mobile wallet services in Fiji, or designated bank accounts of the beneficiaries. And it has been confirmed that by February 2, 2023, 535 insured beneficiaries had received their eligible pay-outs. Significantly, nearly half of them are women and over 200 (37.4%) are persons with disabilities, showing the inclusiveness of the outreach and coverage.

Valuable Lessons
While acknowledging that the entire process could have been completed in fewer days, the fact that this was the first time ever that such a market systems approach has resulted in a timely response and infusion of funds to affected communities (we understand that this has been the only response that has reached them so far) It validates the Programme strategy and hypotheses and establishes the significant role of the private sector, the cooperatives, the digital service providers and media in development initiatives. It also reinforces the ambitions of SDG#17- Partnerships for Goals- clearly demonstrating that complex and persistent development challenges, in this case, lack of access to appropriate and affordable climate risk insurance solutions, can be addressed, contributing to SDG#13- Climate Action

Initial feedback received over phone from a cross-section of beneficiaries who received payments indicate a strong sense of satisfaction, appreciation, recognition of the timeliness of the payment and confidence in the solution. As part of its monitoring, evaluation and learning (MEL), PICAP is planning field visits to meet beneficiaries to get first-hand feedback on the claims payments, its resultant impact on their livelihoods, and to better understand ways to improve the interventions. While 535 beneficiaries have received payments, it is very likely that other clients may have expected pay-outs but due to various reasons, not received any. ’Basis risk’ – which refers to the risk that insurance pay-outs do not cover the full cost of the claim event - is one of the biggest challenge in any parametric insurance product This occurs due to factors such as rainfall data, location of the insured, their actual losses etc. During the field visits, inputs and feedback from such clients will also be included for future product and process enhancements. The Programme recognises that the journey has just begun, and we have miles to cover and new milestones to reach.

Any extreme weather event has unpleasant consequences for those affected. And this was also the case in Fiji, when the Western division experienced heavy rainfall earlier this year. Since no cyclone happened, humanitarian and emergency responses were not activated, although, according to some of the beneficiaries interviewed, the resultant flooding, did cause a lot of damage to crops and property. And besides this parametric insurance pay-out, they had not received any other assistance, again validating the case, approach, and strategy. Although unfortunate, this extreme weather event and claim payments to the eligible insured beneficiaries points to the of the positive impact that the programme is already creating, and outlines the contours of the path towards achieving the overall objectives.

While the programme, with its partners, is developing a lessons learned knowledge product, the recent pay-outs and the beneficiary interviews will provide inputs that will shape the interventions for the next phase of regional and global expansion. It is not often that a development programme gets validation from the direct beneficiaries in such a short time. This only places added responsibility on the programme management and team to deliver more, deliver better.