Indonesia

GlobalAgRisk, with support from the Ford Foundation, is undertaking an effort to develop and introduce index-based insurance for earthquake risk in Indonesia. Indonesia ranks 11th for its economic exposure to earthquakes, estimated at USD 79 billion, and ranks third out of 153 countries for the number of people present in earthquake hazard zones. Severe earthquakes, like many natural disasters, are a correlated risk that threatens the livelihoods and future economic well-being of many people over a wide area. In late 2009, the 7.6 and 6.8 earthquakes in West Sumatra alone resulted in 1,300 lives lost and 1,214 persons severely injured. More than 250,000 households were affected by a total or partial loss of their homes and livelihoods.

An important advantage of an index-based approach is that payments can be made rapidly, providing the financial resources needed to respond to such a catastrophic event. The project goal is to develop an efficient and affordable, market-based index insurance product for earthquake risk that would protect the asset accumulation and access to financial services for Indonesia’s working poor. GlobalAgRisk is pursuing two market development paths. The first is a risk aggregator strategy to develop a meso level product that targets microfinance providers and SMEs that serve the poor. The second is to develop a household level resiliency strategy, building upon the foundation of the initial product bundle an earthquake index contract with existing microfinance products targeted directly to low-income consumers.

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