The Need for Disaster Microinsurance for Local Market Recovery

The innovation is a small business disaster microinsurance programme to enhance recovery of local markets that play a critical role in providing goods and services to disaster-affected populations in urban settings.NEW_LINENEW_LINEResilience of small businesses at the local levelNEW_LINENEW_LINEEnterprise forms the backbone of everyday resilience at the local level. However, repeated disasters have progressively debilitated and corroded the continuity of enterprises at all levels. In particular, small scale and informal businesses bear an inordinate brunt of disasters. This is particularly true of India, which due to its high geophysical vulnerability to hazards and the vast size of the informal and small businesses in its economy have underscored the problem of economic resilience to disasters.NEW_LINENEW_LINEAs estimated by the NDMA, “Approximately 71 per cent of small industries/ businesses do not have any disaster management plan and 43 per cent of them never reopen after a disaster hits them”. Serving as the sole means of livelihood for economically vulnerable sections of the population, the damage caused to such small scale and informal enterprises by disasters often pushes and entraps people in a vicious circle of poverty and deprivation. Furthermore, there are several factors such as a rising urban population; increased disaster losses due to climate change, widening economic disparity and inflation that are likely to compound all the detrimental impacts disasters on such business units.NEW_LINENEW_LINEThe Innovation: Scope, Process and ProgressNEW_LINENEW_LINEAll the above stated facts, underscore the immense challenge of building economic resilience in markets that serve the most vulnerable sections of society. The innovation to achieve this end is disaster microinsurance for the small businesses of local markets, an initiative by the All India Disaster Mitigation Institute (AIDMI), Stanford University and the Harvard Humanitarian Initiative (HHI). The innovation will be piloted in three urban sites in India. The project has progressed to identify the tentative urban sites for piloting this innovation. The rationale behind choosing sites will be the high risk profile of cities. The efficacy of the innovation will be tested in selected three cities with small businesses.NEW_LINENEW_LINEUnder the project, the small businesses are collectively defined as small from informal and unregistered businesses operating as street vendors and in-home businesses, by family members or/and a small local group/s established on both residential sites and local market sites. These businesses are often without register in government regulations, lack of protection and insecure from crisis situation. These businesses are often without fixed building structures located on business stands demarcated as such by local government (municipal) town planning regularities. Due to such characteristics often these businesses are located in vulnerable areas exposed to crisis and neglected in relief and recovery efforts such as compensation, protection measures and not even covered in post disaster assessments of loss and damage by government. However, these businesses are supporting local recovery effectively by providing goods and other direct and indirect contributions in addition to livelihoods.NEW_LINENEW_LINEThe process of piloting the innovation will be initiated by a demand survey of the need for disaster insurance with small businesses in the local economies of all sites. This survey will capture the aspirations and an apprehension of the various small scale entrepreneurs about disaster-insurance so as to evolve an insurance scheme which is precisely matches their expectations and needs. The findings of this demand survey will feed into creating an insurance policy best suited to the needs of the targeted group. Important aspects of such a policy such as the premium, time frame, claim settlement mechanism, etc. will all depend upon the findings of the demand survey as well as consultations with relevant stakeholders (such as insurance companies, partners and the local community).NEW_LINENEW_LINEOnce the insurance scheme is formalised, it will be piloted with 3000 small business operators in each of the above mentioned cities. All the steps of the process of taking this insurance scheme will be closely monitored and a thorough evaluation will be made of the impact of this scheme on the insured entities.NEW_LINENEW_LINEThis disaster insurance scheme for small and informal businesses could well be the humanitarian innovation that can help engender sustainability and resilience to business enterprise so sorely needed in post-crisis settings.