In the backdrop of the 2018 Kerala Floods, the article discusses the protection gap in disaster management and risk transfer to insurance companies as a solution
Disaster Management Financing in India:
- The present financial scheme includes Calamity Relief Fund (CRF) and National Calamity Contingency Fund (NCCF). Additionally, there is Prime Minister’s Relief Fund which does not get any budgetary support from the government and relies upon donations
- Generally, the state governments access the Calamity Relief Fund (CRF) during emergencies. In case the fund is not sufficient, the state government approach the Central government for additional assistance
- Centre does a loss assessment based on which funds are disbursed to the state.
- In case the Centre is unable to pay the funds, it approaches bilateral/multilateral organizations to seek financial support. This requires acceptance of loan conditions which may not be in line with national capacity or policy
Issues with Present System:
- There is considerable uncertainty in forecasting actual losses and funds available and hence it’s difficult to keep sufficient reserves to tackle disasters. Thus, there lies a protection gap.
Note: The Protection gap is defined as economic losses due to a disaster and available funding for disaster management.
- There is no standardized way for accurate loss assessment common to both state and Centre which leads to gap between amount requested by states and amount provided by the Centre.
- Disaster relief mechanism is primarily focused on immediate relief and rehabilitation, and the focus on the restoration and rebuilding of infrastructure is less
A robust domestic insurance market backed by international reinsurers and public sector insurance companies can help ease government’s funding burden and also fill the gap in reconstruction financing
International Best Practices:
- National Flood Insurance Program, USA: It aims to reduce the impact of flooding on private and public structures. It does so by providing affordable insurance to property owners, renters and businesses and by encouraging communities to adopt and enforce floodplain management regulations.
- FONDEN, Mexico: It is a comprehensive disaster-risk financing strategy comprising reserve funding, reinsurance and catastrophe bonds.