Pakistan is suffering from the devastating impacts of floods, earthquakes, cyclones, droughts and other natural disasters. We are experiencing an increase in the intensity and frequency of these events.
German Watch, a Germany-based think tank, has in its annual Global Climate Risk Index 2016 ranked the top ten countries most hit by climate change. The index ranks Pakistan at number five in the list of top ten countries most affected by climate change. It also tells us that Pakistan lost more than $2 billion, equivalent to 0.25 percent of GDP.
However, if we recall its previous report, where it showed the top ten countries most affected by climate change in 2010, Pakistan was ranked number one, losing more than $25 billion, equivalent to over five percent of GDP. The losses incurred during the 2010 floods were far greater than the cost of building the Bhasha Dam.
Considering the damages caused by natural disasters, it is imperative that the government of Pakistan taps into all possible resources to help vulnerable communities minimise their losses.
Many affected communities face not only immediate losses, but also bear long-term consequences.
After the 2010 floods, the government began to look at whether some form of disaster insurance could help address the needs of communities vulnerable to and affected by natural disasters. It came up with an idea to establish a National Disaster Insurance Fund.
Globally there are many national disaster funds in the world, and insurance approaches designed to reach the most vulnerable people. However, there is no such fund in Pakistan. Such a fund would greatly help the affected in case of disaster. The aim of this fund could be threefold: in-line with the National Disaster Management Authority’s (NDMA) objectives; complying with the needs of the marginalised communities; and financially viable and sustainable.
In this regard, the NDMA has requested the Climate and Development Knowledge Network (CDKN) to support its cause by developing a risk transfer mechanism. This can help protect the lower income population group against extreme events, which are expected to increase in frequency due to climate change impacts. The main purpose for developing a National Disaster Insurance Framework would be to set up an effective and transparent mechanism with streamlined distribution channels and adequate funds, to be in place before the disaster strikes. This mechanism can ensure that the money reaches the beneficiaries in the shortest possible time.
While significant efforts have been made to develop hazard monitoring networks and consolidate hazard data from different sources, the resulting risk assessment efforts have mostly focused on identifying hazards and consequences, while failing to assess the relative significance of risks.
However, the fund faces some challenges. These include a highly vulnerable population – approximately 100 million; little purchasing power of the chronic poor; high population growth rate indicating that more people will eventually become vulnerable in coming years; a poor economy, constraining the allocation of sufficient resources for the fund; high inflation rate; communities’ vulnerability to natural disasters; lack of community involvement, perceiving the idea as a ‘Western’ initiative; and the gender gap.
The project proposes a draft framework, which offers various possible options for the fund. With the support of various public-sector entities, including the National Insurance Company Limited (NICL), Pakistan Reinsurance Company Limited (PRCL) and the Insurance Regulator and Securities and Exchange Commission of Pakistan (SECP), the fund can be transformed into a reality.
The National Disaster Insurance Fund aims to provide disaster insurance to the chronic and transitory poor, thereby increasing their response preparedness, so that they quickly recover from the damage caused by natural disasters.
According to Ali Tauqeer Sheikh, CEO, LEAD Pakistan and Director Asia, CDKN, “Keeping in view the devastation caused by national disasters every year, it is extremely important to have a National Disaster Insurance Fund, a fund that will help protect the communities living in the vulnerable areas of Pakistan from extreme events.” He further says, “The fund should be financially viable and designed keeping in mind the norms and culture of diverse communities and regions...should be localised, to enable timely disbursement of the funds among the affectees.”
The fund should be designed in a way that promotes the culture of risk reduction by providing incentives, and linking it to certain risk reduction measures undertaken by the communities. Lower and middle income countries like Pakistan lack effective disaster risk reduction measures.
Due to this, international insurers develop an over-cautious approach and tend to price the risk higher than they normally do for developed markets. The fund would be able to address this issue. However, in order to effectively do this, it should aim to come up with a 10-year roadmap for annually increasing its reserves.
When it comes to disbursing capital after a disaster, it should be done in a timely manner and linked with risk reduction and preventive activities. Applying a combination of insurance measures with risk reduction, early warning, education, infrastructure strengthening, and land-use regulations, can greatly reduce immediate losses and long-term development setbacks from disasters.
The initiative by the NDMA to establish a National Disaster Insurance Fund can be a breakthrough to help the most vulnerable communities among us better manage natural hazards. Should Pakistan move forward in this endeavour, it will of course face challenges, but hopefully deal with them effectively. This will eventually provide leadership and innovative vision to address some of the most acute, and often invisible, challenges of protecting vulnerable people from the risks of natural hazards.
The writer is a freelance contributor.