Protecting clients and organizations from climate risks through meso-level coverage
Meso-level insurance schemes that cover both the individual risks of clients and the aggregated risks of organizations serving them can provide effective risk protection against natural disasters that threaten the stability of low-income communities.
Repeated natural disasters pushed Fonkoze, a Haitian microfinance institution (MFI), to look for an innovative risk management solution to protect itself and its clients. In partnership with key public and private organizations, it formed the Microinsurance Catastrophic Risk Organization (MiCRO).
MiCRO provides index-based cover for the MFI based on rainfall, wind speed and seismic activity. When these parameters exceed a predetermined threshold, a payout is triggered for the MFI. MiCRO also provides basis risk protection: if payout based on the index trigger is not sufficient to cover actual losses of the MFI, MiCRO covers 85 per cent of the difference, up to US$ 1 million per year. The actual loss is based on an assessment of clients’ losses, conducted by the MFI.
The first payout occurred in 2011 due to damage caused by extended rains. The rains resulted in a parametric payout of US$ 1.05 million to Fonkoze. Fonkoze then assessed its clients’ damage and paid benefits to 3,800 clients, including loan write-offs and a cash payment of US$ 125 to each affected client.
To learn more, see Chapter 4, “Microinsurance and climate change” by Thomas Loster and Dirk Reinhard in Protecting the Poor: A Microinsurance Compendium, Volume II.