New parametric extreme weather microinsurance product in the Philippines

A new microinsurance product is targeting cooperatives in the Philippines to give them an affordable source of parametric insurance to protect them against the knock on effects to their loan portfolios from extreme weather events involving wind and rainfall.

The Philippines is frequently subjected to typhoons and tropical storms and cooperative members are often unable to recover from the effects of these natural disasters. The idea of microinsurance is to prevent the insureds slipping further into poverty each time a disaster occurs. Cooperatives in the Philippines have suffered historically as their members become unable to repay their loans due to losses caused by an extreme weather event. This specific microinsurance product is designed to protect the cooperatives by guaranteeing their loan portfolios through a parametric payout triggered by actual weather conditions. Currently the same risk is mitigated by offering higher interest loans which of course has a detrimental effect on the members solvency.

Philippine cooperative insurance company Coop Life Insurance & Mutual Benefit Services (CLIMBS) has teamed up with Munich Re and Deutsche Gesellschaft für Technische Zusammenarbeit GmbH (GTZ) to create and finance this scheme. CLIMBS acts as the primary insurer for local cooperatives and offers them loan portfolio cover. The microinsurance product will be triggered by actual measured weather conditions. The cooperatives will receive predefined payouts of a percentage of their loan portfolio if the parametric trigger for either rainfall or wind is reached. Trigger levels vary for each municipality depending on their exposure to typhoons.

So this helps the cooperatives by ensuring they don’t suffer massive default on loan repayments, but how does it help the members and farmers who are most at risk? There is a binding agreement in this scheme which means that the cooperatives are committed to passing on the benefits to their members. The payout will be used to help members rebuild dwellings, replace livestock and other assets.

This is a really good example of a microinsurance product which helps life and business to continue as normally as possible following disaster. Too often microinsurance focuses on the poorest people, which is fine, but often they overlook the chain of businesses affected by the impact of a disaster which makes recovery a slower and more difficult process. This scheme seeks to ensure predictable cash flow, greater continuity and increased ability to recover from disaster for the cooperatives as well as their members.

More details in this press release from Munich Re.