Innovative micro-insurance can be a shield against vulnerability: Study

A study indicates that innovative micro insurance can be a solution against vulnerability, and disaster shock and aftermath.

The findings were disclosed at the Annual BIDS Conference on Development (ABCD) which highlighted the potential of innovative micro-insurance to mitigate the devastating impacts of disasters and vulnerability.

While presenting the report titled "Building Resilience Among the Poor: Lessons from the Field," former chief economist of the Asian Development Bank and Professor of the University of Tokyo, Yasuyuki Sawada, emphasized the need for a multifaceted approach to disaster management. 

While macro-insurance, such as catastrophe bonds, has gained prominence, the professor highlighted the potential of micro-insurance, particularly index-based risk transfer mechanisms. 

These innovative products, linked to measurable indices like rainfall, temperature, or vegetation health, can provide financial protection to vulnerable populations without the complexities of traditional insurance.

The professor also delved into the psychological impact of disasters, noting that individuals often become more present-biased and less risk-averse in the aftermath. 

This behavioural shift underscores the importance of commitment devices and nudging techniques to encourage long-term planning and risk mitigation.

The presentation further emphasised the crucial role of the market, state, and community trinity in disaster resilience. 

By working in tandem, these three entities can create a robust system to support disaster recovery and prevention.

The session was chaired by Sultan Hafeez Rahman, director of the BIDS Graduate School of Economics.