The Microinsurance Catastrophe Risk Organisation (MiCRO), a Barbados based reinsurance company that leverages the capital efficiency of the international reinsurance market alongside donor capital, has launched a novel index-linked business interruption policy.
MiCRO launched in 2011 with the backing of Swiss Re, among others, to bring efficient insurance risk transfer products to the region, backed by global reinsurance capacity.
The organisation has launched a novel catastrophe index-linked business interruption microinsurance product, backed by reinsurance from global player Swiss Re.
The new microinsurance product has been designed to meet the protection needs of low-income families in Central America and will cover business interruption losses from excessive rainfall, severe drought and earthquakes in Guatemala to begin with.
“This innovative product will for the first time offer insurance protection in Guatemala to those who need it most,” stated Carlos Boelsterli, CEO of MiCRO. “Clients will also receive training to reduce their exposure to risk. Over the long run, this approach will help strengthen the resilience of vulnerable communities and improve the country’s overall economic performance.”
MiCRO wants to expand this approach and has already submitted a related catastrophe index-linked microinsurance product for approval in El Salvador and plans to do so in Honduras in 2017
“We are working closely with microfinance institutions and insurers in Central America to develop commercially sustainable products that are appropriate and affordable for farmers and small businesses,” commented Steve Mitchell, Chairman of the Board at MiCRO. “Anyone who may be affected by a catastrophic weather or earthquake event will be able to get the insurance protection they need from a reliable source.”
The “catastrophic risk index insurance policy” is being sold through local Guatemalan partnering microfinance and insurance companies Banrural and Aseguradora Rural.
The insurance policies are triggered automatically by predetermined catastrophe and severe weather events that are verified using objective data sources, such as NASA satellites.
The stronger or more severe an event is, the greater the payout to the policyholders will be. Those buying policies will also receive disaster risk reduction training through national coordinating bodies, such as Guatemala’s CONRED.
MiCRO says that in Guatemala “The agriculture and small business sector is exceedingly susceptible to weather-related events. Climate change is a threat multiplier for many such events, increasing both their intensity and frequency.”
Pitching this new product as business interruption cover is smart, as it is one angle that is often undersold with parametric or index-linked insurance and reinsurance covers. By responding directly to catastrophe or severe weather event parameters, a payout can be made rapidly at a time when the policyholders business is suffering and likely to experience a loss of revenue. Hence why we believe these products can scale up to provide business interruption cover to large corporates and commercial clients as well.
Prior to this new product being launched, Guatemala did not have any index-based, catastrophic risk insurance policies specifically designed for low-income individuals.
MiCRO targets getting its catastrophe index-linked insurance products to 250,000 people across Central America by 2019, selling the products through local insurance companies, and working with aggregators, including microfinance institutions, and other organizations, to distribute the policies on the ground.
MiCRO’s is supported by the Inter-American Development Bank, the Swiss Agency for Development and Cooperation, Mercy Corps, and reinsurance firm Swiss Re whose technical assistance and risk capacity, MiCRO says, “has been instrumental in providing this first-of-its-kind insurance protection.”