Tunisia gets World Bank support to develop catastrophe insurance market

The North African country of Tunisia is to get World Bank support and funding to help it develop its catastrophe insurance market and cover people and assets against the impacts of disasters and climate-related events.

Tunisia currently has a very low level of insurance penetration (around 2%) and so the World Bank, alongside the French Development Agency (AFD), are financing $50 million each, for a total of $100 million into a project to strengthen and enhance disaster and climate resilience in Tunisia.

Key among the initiatives is the development of a catastrophe insurance market, with both households and businesses currently largely unprotected.

Tunisia faces impacts from a range of natural hazards, including floods, drought, landslides, forest fires, sand encroachment, and snowstorms.

54% of disaster events reported between 1957 and 2018 were related to drought, the World Bank said, but floods accounted for the most significant economic losses in that same period (around 60% of total losses), as well as the highest number of casualties, and the highest number of people affected (around 560,000 people) by disaster events.

The World Bank also said that Tunisia is considered highly vulnerable to climate change, with adverse impacts from increased temperatures, reduced precipitation, more serious water shortages, and rising sea levels all anticipated.

As a result, building resilience to these is key, as too is financial preparation.

“This project approved today will help strengthen the government’s Disaster Risk Management capabilities to protect Tunisians from more frequent—and increasingly severe—natural disasters,” explained Tony Verheijen, World Bank Tunisia Country Manager. “The Program will boost investments in resilience and strengthen the country’s policies—including developing a catastrophe insurance market—which will help protect households and businesses across Tunisia.”

Hence, the Tunisia Integrated Disaster Resilience Program will look to boost flood resilience in the country, given it is the major exposure faced, in terms of cost and impacts.

Work will also be undertaken to strengthen Tunisia’s early warning systems and modernise its climate and hydrometeorological services, while regulations will also be improved to boost coordination across sectors and strengthen Tunisia’s overall disaster and climate resilience, the World Bank explained.

The insurance market focus will see specific products and mechanisms designed to protect Tunisians against the financial fallout of natural disasters, the World Bank said.

These disaster risk insurance programs are expected to feature a combination of public funding with private sector insurance capital.

Flood and earthquake insurance are expected to be the focus, with both covers for the population and also government assets envisaged under the project.

Part of the work will focus on helping the private insurance and reinsurance market to better price risks in Tunisia, to make the private market more functional there, while sovereign risk transfer is also a possibility.

There is a need for capacity to support this and given the exposure levels in Tunisia, perhaps even a catastrophe bond should not be ruled out, in particular for earthquake risks which are likely more readily priced as well.