Identifying Innovative Solutions at the Local Level

After successfully conducting a demand survey of small businesses to assess the demand for disaster microinsurance in Puri (Odisha) and Guwahati (Assam), a similar exercise was conducted in Cuddalore (Tamil Nadu). The city of Cuddalore falls in the eastern part of Tamil Nadu, which is prone to natural hazards such as tsunamis, cyclones and floods. The district also experiences a hot and tropical monsoon climate, characterized by humid weather and erratic rainfall. Temperatures range from 19.9o C to 26o C in the winter and from 31o C to 42o C in the summer. Together, these conditions set Cuddalore’s enhanced vulnerability to various natural hazards. In particular, flooding and cyclones pose a serious threat to the city due to its long coastline, exposure and vulnerability.

The enhanced vulnerability of Cuddalore district also exposes the small and informal businesses of this city to a lot of climate stresses. Previously, in the aftermath of many disasters, these small and informal businesses had suffered heavy losses, sometimes forcing their closure altogether. While the incessant floods during the monsoon months is a source of distress for all the residents of Cuddalore, the small and informal businesses of the city feel a greater pinch of these climate stresses. Flooding causes widespread damage to the structure of the shop as well as the inventories of such enterprises. Since most informal businesses possess no safety nets to recover or sustain livelihoods after an extreme event, a lot of them go out of business following an extreme event.

A potent way of overcoming this drawback for small and informal businesses is through promoting risk transfer approaches, in particular disaster microinsurance. The demand survey conducted in Cuddalore, seeks to accomplish two purposes. First, to assess the demand for a disaster microinsurance scheme among the small and informal business community of the city. Second, to disseminate information about the potential benefits of disaster micro insurance in protecting livelihood assets against any kind of natural disaster.

Some of the highlights of the demand survey conducted at Cuddalore are as follow:

• Among the total small business surveyed (1746), 96% of the small business owners have been affected by a disaster every year and expressed the need of a disaster microinurance scheme.
• Most of the small and marginal business owners suffered huge losses of both livelihood and inventories. After a disaster strikes, they are forced to borrow money from local money lenders, at an exorbitant rate of interest which pushes them into a vicious cycle of debt.
• It was also found during the survey that there was limited understanding about insurance among the respondents. The survey revealed that only a few small business owners among the surveyed population had previously subscribed to insurance. While only 4% of the surveyed small business owners admitted to having any knowledge on micro insurance.
• The small business owners have expressed interest in purchasing business disaster insurance and they generally favor paying smaller premiums annually.
• Most of them wanted comprehensive programs that covered numerous risks. This design would include disaster, eviction, theft, and injury. A composite and integrated product at the right price point would likely be more successful.
• Moreover, the small business owners wanted insurance programs that protected against heat waves and sudden rainfall. A more permanent program should shield businesses from these conditions.

After such a thorough study, it is apparent that this vulnerable section of society needs a proper coping mechanism against the various hazards to which it is exposed. Thus, disaster micro insurance is a great instrument for the small and informal business owners. This form of insurance can also keep small business out of a cycle of loss/poverty by providing the critical post disaster liquidity required in urban environments.