Earthquake Index Insurance - Indonesia
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Project Description:
Supported by the Global Index Insurance Facility (GIIF), the International Finance Corporation (IFC) has been working with PT Reasuransi MAIPARK (national reinsurer of all special risks) to design and retail an index insurance product that protects the lending portfolios of banks from liquidity crises in the aftermath of an earthquake. This is relevant particularly for microfinance institutions (MFIs) and rural banks to be able to continue lending to communities when funds are most needed.
Product brochures in English and in Bahasa Indonesia are available.
Background
Around 133 million people in Indonesia live in or near high-risk earthquake zones, with economic exposure reaching an estimated US$79 billion. These risks are especially high in areas such as Yogyakarta and Padang, where the banks that were most affected lost between 15 and 35 percent of their income following recent earthquakes. These events can erode bank capital reserves and compromise their ability to lend.
Clients
Microfinance institutions (MFIs)
Partners
PT Reasuransi MAIPARK (national reinsurer of all special risks)
Products
Earthquake index insurance (EQII) product to cover the loan portfolio of financial institutions
Insured Perils
Earthquakes
Regulatory Environment
Financial Services Authority of Indonesia (OJK)
Data
PT Reasuransi MAIPARK for EQ models; BMKG or USGS for verification
Development Impact
A new earthquake index insurance (EQII) product has been approved by the regulator in 2016, and is ready for the retail market. The insurance payout is triggered by a pre-determined earthquake parameter (Magnitude and Intensity), which is announced by an independent and established third party like the BMKG (Indonesia’s Meteorological, Climatological, and Geophysical Agency) or the USGS (the United States Geological Survey).
The idea is for the MFIs to buy insurance to protect their loan portfolios from potential liquidity crises after earthquake events.
Next Steps
Sustained and creative market outreach; ensuring relevant product adjustments and pricing; and combining incentives with other products and financial instruments will all play a key role in achieving market scale and sustainability. IFC is working with MAIPARK to develop market awareness and educational materials, and will continue to reach out to financial institutions across Indonesia.
Contacts:
Utako Saoshiro (usaoshiro@ifc.org)
