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Philippines mulls disaster risk insurance for local governments

Source: Thomson Reuters Foundation - Wed, 22 Jan 2014 03:05 PM
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Pedro Lacandazo, 57, explains how seawater brought by the storm surge from super typhoon Haiyan flooded his house up to the ceiling and separated him from his family, in San Joaquin town at Palo, Leyte province, central Philippines, on December 23, 2013.REUTERS/Romeo Ranoco
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MANILA (Thomson Reuters Foundation) – In response to the destruction caused by Super Typhoon Haiyan in November and many other natural hazards in the past few years, Philippine government officials and the U.N. Office for Disaster Risk Reduction (UNISDR) are looking into an insurance scheme targeted at local governments as a way to improve the Asian nation’s resilience to disasters.

On Tuesday, at a high-level forum on the issue held at the Office of the Senate, UNISDR and the global re-insurance companies Willis Re and Munich Re presented the Philippines Risk and Insurance Scheme for Municipalities (PRISM), which would provide speedy budgetary support to local government units in the event of a natural catastrophe.

“The Philippines is hit by over 20 typhoons every year. What is needed is a simple scheme which will provide valuable protection to people and municipalities before the next typhoon season,” UNISDR head Margareta Wahlström said in a statement issued before the forum in Manila.  

“In order to be successful it will require mandatory take-up by local government units, but it will make them masters of their own destiny when it comes to responding to relief and recovery needs in the wake of a major disaster event,” she added.

Typhoon Haiyan killed more than 6,000 people, destroyed or damaged some 1.5 million homes, and caused economic losses of around $13 billion.

“Filipinos are known to be a resilient lot. Unfortunately, the same cannot be said of our infrastructure, schools, our cities and even our economy,” Senator Loren Legarda, chair of the Senate Committee on Climate Change, told the forum. “It is more economical and efficient to make our communities resilient to disasters than to be held hostage by the exhausting and costly cycle of rebuilding our communities every time a typhoon, storm surge or earthquake hits.”

LOW INSURANCE PENETRATION

The government has yet to decide whether it will launch an insurance scheme for all or some of its 1,500 or so municipalities and, if so, what form it would take and how it would be funded.

But Jerry Velasquez, UNISDR’s head of advocacy and outreach, told Thomson Reuters Foundation the PRISM proposal had been developed in response to interest from Manila.

“There is still a lot of focus on response and (reducing) mortality (in the Philippines). The number of people dying in disasters is going down, but the real challenge is economic losses,” he said by phone from the Philippine capital. “Insurance is a means of shifting the focus from saving lives to also saving money.”

According to global financial consultancy firm PwC, the Philippines has one of the lowest insurance penetration rates in the world as measured by premiums as a percentage of gross domestic product (GDP), at about 1 percent.

The reasons for this include premiums that are too high for many people to afford and low awareness about how insurance works, Velasquez said.

Under the PRISM proposal, the payment of claims would not be based on actual losses but on a pre-agreed amount when a specific trigger, such as the amount of rainfall or wind speeds, tops a certain pre-agreed threshold.

“Once one trigger has been exceeded, a payment will be made through the scheme manager to the local government unit and this can be used for rescue, relief, recovery or rebuilding depending on needs assessments,” said Ernst Rauch, head of Munich Re’s Corporate Climate Centre.

The scheme could become a key part of a broader national catastrophe risk management programme, and insurance cover could be adjusted to reward disaster risk reduction efforts undertaken by municipalities, Rauch added.

FUNDING AVAILABLE

One major question, however, is how local governments would pay the premiums for disaster risk insurance.

The country’s Climate Change Commission Secretary Lucille Sering said any such scheme should operate through the Government Service Insurance System, and local authorities could tap a 1 billion peso ($22 million) government-backed disaster fund to help them purchase insurance cover.

“We have an existing fund already under the law - the Peoples’ Survival Fund (PSF) - that can be used to subsidise the initial premium of risk insurance,” Sering told Thomson Reuters Foundation. “We just need to ask the government for it.”

The PSF, which is appropriated annually, is intended to assist local governments in their efforts to adapt to climate change and reduce disaster risk, including projects to manage water resources, make agriculture more resilient, protect health and develop infrastructure, Sering explained.

Speaking at the Manila forum, Senate President Franklin Drilon said insurance would protect “individuals and communities from financial suffering in the aftermath of natural disasters”.
“But we can all agree on the fact that insurance is not a silver bullet for risk management and risk reduction,” he added.

Philippine policy makers should examine disaster risk insurance carefully, since it “is something that is new to many of us”, Drilon urged. He expressed concern that it might be difficult to agree on such a “paradigm shift” within the few months before the start of the next storm season.

UNISDR’s Velasquez said Typhoon Haiyan and any subsequent initiative by Manila to trial catastrophe insurance on a large scale could mark a “turning point” in the involvement of the financial sector in disaster risk reduction at local government level.

“We would like (the Philippines) to lead the whole world in terms of this kind of innovation,” he said.

Imelda Abano is a freelance contributor for the Thomson Reuters Foundation based in Manila. AlertNet Climate staff writer Megan Rowling contributed additional reporting and writing.

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