ADB eyes credit facility for insurance pool

THE ASIAN Development Bank is eyeing a credit facility for parametric insurance.

THE ASIAN Development Bank (ADB) said the Philippines will benefit from a fast-disbursing parametric insurance pool, eyeing a credit facility for the program.
“There is a strong case for the development of a city disaster insurance pool in the Philippines. There is significant disaster risk across the Philippines, with many cities exposed to high levels of typhoon and/or earthquake risks. Moreover, with the expected continuation of rapid urban growth, future disaster losses could be significantly higher than recently experienced,” the ADB said in a report titled Philippine City Disaster Insurance Pool Rationale and Design.
“Parametric insurance coverage would enhance the effectiveness of current post-disaster funding sources by providing rapid post-disaster liquidity,” it added.
Unlike traditional indemnity-based insurance that takes a long time to assess the damage involved, a parametric insurance policy program will immediately disburse a pre-determined amount once certain disaster-related indexes are met such as peak gust for storms, and spectral acceleration for earthquakes, among others.
The program does not aim to cover total damages and losses as the payout may not automatically match actual loses, but instead seeks to provide immediate funds until additional resources become available, which will allow the government to provide better emergency response.
“Under current arrangements, a number of cities do not have adequate dedicated financial resources to combat the effects of severe typhoons or earthquakes,” the regional development lender said.
The ADB said it is eyeing to support the Philippines in financing a parametric insurance pool.
“PCDIP (Philippine City Disaster Insurance Pool) is expected to be primarily capitalized through a sovereign loan from ADB in its initial years,” the ADB said.
“Parametric insurance can provide payouts within a few weeks of a disaster, and can be structured to allow payouts to be flexibly used to address a range of potential funding needs. Such rapid payouts would complement existing post-disaster financing arrangements, such as indemnity insurance purchased through GSIS (Government Service Insurance System) which is targeted at longer-term financing needs during the post-disaster reconstruction phase.”
“To enable cities to take full advantage of the benefits of parametric insurance, it is crucial that the implementation of the proposed parametric pool is embedded into the Philippine legal and regulatory environment, and that appropriate inputs and guidance provided from relevant national government agencies, including from COA (Commission on Audit) on the use of payouts, are implemented,” it added.
The Philippines currently has a one-year parametric insurance policy with the World Bank that began on Dec. 20 worth P20.49 billion covering 25 disaster-prone provinces after paying a P2-billion premium. — Elijah Joseph C. Tubayan