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New weather insurance policy may protect the 'small man'

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A new weather insurance policy could strengthen low-income earners' ability to access loans. Livelihood Protection Policy (LPP), launched under the programme 'Climate Risk Adaptation and Insurance in the Caribbean', provides coverage for loss of income due to weather events. The policy is credited with protecting the livelihood of low-income, vulnerable persons against peril.

It is now being offered by GraceKennedy through its insurance subsidiary, Jamaica International Insurance Company (JIIC), which is partnering with select credit unions and the People's Co-operative Bank to distribute the policies.

These entities are considering using the policy for security, according to Elizabeth Chung, manager, customer experience and innovations at JIIC.

LPP improves access to credit, leading to financial stability in the long run and encourages behaviour shift from risk neutral to risk aware, said Sobiah Becker, project manager at Munich Climate Insurance Initiative (MCII), which developed the programme in partnership with the Caribbean Catastrophe Risk Insurance Facility (CCRIF); microinsurance broker, MircoEnsure and international reinsurer Munich Re.

MIIC was started in response to the realisation that insurance solutions can play a role in adaptation to climate change.

"For example, if someone purchases the policy in addition to being employed, it can help him access credit, because it can be proof that loan repayments can be made once an insurance payout is made," said Chung.

LPP is expected to be taken up by 300 customers in St Thomas and Portland, where the insurance offering is being piloted.

Some insurance policies are used as collateral, depending on their cash surrender value.

But it's still early days for acceptance of the LPP as collateral, as it is new to the market.

Nonetheless, one banker reckons that a product such as the LPP would be ideal for those low-income earners who would have never opted for an "exotic" life insurance policy — which is accepted as security.

"Surely the LPP could act as a supplementary security, which would increase their chances of getting a loan," he said.

In the meantime, LPP's biggest selling point is that the product is parametric, meaning that individual payouts are tied to a series of thresholds for wind speed and rainfall in a given weather event. If one of the thresholds is met, the client's policy is triggered and will receive an automatic payout to his/her bank account. Payout isn't based on damage.

If no event occurs, no payout is made.

Still, Chung reckons that the policy is ideal nonetheless.

"It's good because Jamaica is prone to dangerous events. You could go months without a disaster and then it suddenly strikes," she said.

"It's more of a continuous policy with an anniversary date," she added.

Loss of income after severe rainfall and wind has been a major complaint of farmers for years. Agricultural workers who buy the product could see their food insecurity or crop losses reduced because of the policy.

Quick cash payouts enable affected households to rebuild their lives after a weather event. SMS-based notifications alert policy holders to approaching weather events, allowing them to take precautionary measures and reduce exposure, said MCII.

But LPP is suited for anyone, irrespective of his or her income-generating activity or livelihood.

It is supposed to assist in the country's social development and it's to help those who can't help themselves after certain weather events, Chung said.

"Often after certain events occur, people are dislocated and are unable to put their lives back in order," she said. "A payout will give them cash they would not have otherwise had."

Surveys for demand of LPP in Jamaica showed 48.1 per cent of individuals indicating that they didn't repair or replace their damaged assets, 51.9 per cent waited for help from the Government, 65.4 per cent used up their savings and 16.3 per cent borrowed money to recover following a disaster, according to MCII's Becker.

Over 1,300 households in five islands, including Jamaica participated in the study.

Coping strategies often lead vulnerable populations deeper into poverty, said Becker.

Total economic damage amounted to US$2.6 billion caused by extreme weather locally. In Jamaica, 96.3 per cent of the national population, 94.9 per cent of the national territory, and 96.3 per cent of gross domestic product is exposed.

Extreme weather events have affected 1.5 million people over the last 30 years in the eastern Caribbean region. LPP is also available in St Lucia.

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