Importance of insurance from natural calamities POV

Impacts of Catastrophes: Catastrophic risk is one where a large number of people are exposed
to the occurrence of peril. With the passing times, the incidence and severity of catastrophes is
increasing. Global climate change has become one of the most serious challenges facing human
society, causing frequent natural disasters e.g. earthquakes, floods, Pandemics i.e. Coronavirus,
etc. The economic losses caused by natural disasters have also shown a rapidly increasing trend,
especially in economically underdeveloped areas such as Pakistan. Catastrophes can have serious
implications on poor households as they do not have sufficient resources to protect themselves
from disasters. Major catastrophes can put the whole progress of economy at halt. Stock markets
plunge, GDP growth comes down, the financial strength of the economy weakens and a lot more.
Therefore, no economy should ever dare to ignore making sufficient provisions to combat the
financial losses of catastrophe.
What is Insurance? Insurance is one of the approaches to reduce the intensity of after effects of
catastrophes. It is extremely beneficial as it provides timely financial assistance following
extreme event shocks; as a result long-term consequences of disasters are reduced. Insurance
operates on the mechanism of Risk Pooling and Risk Transfer which can prove to be very
effective and complementary to disaster relief, rehabilitation and reconstruction. The
redistribution of disaster risk can be achieved through government actions, but can also be
achieved through raising social funds. The insurance mechanism is the first tool used by the
international community (especially the developed countries) to raise social funds for disaster
risk dispersion. The insurance mechanism is the most important way for developed countries to
deal with the risks posed by disasters.
Why Insurance is Important? The coping capacity of developing countries gets overwhelmed,
individuals are forced to sell their limited assets like livestock, and governments are forced to
divert limited resources away from health, education, and poverty reduction for the relief and
reconstruction process. It leads to long-term negative impacts with interruption of economic
activity, loss of employment, decreased Governmental revenue, and increase in poverty levels.
Catastrophes can result in widespread destruction within the community while rendering the
emergency response systems ineffective. A single government may fail to cover the wider
population's risks in the event of a major disaster or a catastrophe. Considering the high
economic impact of disasters, it becomes imperative for developing countries to strengthen their
financial resilience to disasters. Insurance is an important financial instrument that helps spread
the financial risk of a catastrophic event, among masses and through reinsurance internationally
(in exchange for a small price).
Benefits of insurance: can be seen at direct beneficiary level (people affected by disasters), and
at the state level. The benefits at the beneficiary level include improved: disaster risk awareness,
post disaster management, protection against disasters and reduced: borrowings from informal
sources and out-of-pocket expenditure. These factors can result in improved economic status,
enhanced agricultural proficiency and speedy recovery from losses caused by disasters. The
benefits at state-level can be measured in terms of improvements in infrastructure, better farm
productivity, and post-disaster management that leads to reduced fiscal burden, better
preparedness for shocks, and ultimately can lead to growth in the economy. Insurance can help
households and businesses recover after a disaster. Insurers have a great deal of data on natural
hazard risk and impacts.
Agriculture is still the foundation of our economy. Climate change has brought many adverse
factors to agricultural development. Micro insurance e.g. Crops Loan and Livestock Insurance
provide a feasible way for low-income families to transfer their risks. By paying a lower
premium, micro insurance can protect against crops losses due to accidental events, etc.
Livestock insurance can act as an important risk management tool for deaths due to the spread of
diseases and natural disasters like floods, earthquake, etc.
How Insurance Industry Helps Mitigate Disaster Risk?
Insurance helps reducing risk by undertaking mitigation and resilience activities and promotes
risk management culture among the masses. The insurance industry encourages their clients to
take loss prevention measures to reduce climate change risk (through policy clauses and
warranties). For example the clients will require to raise plinth level above surroundings,
improve building standards, carry out disaster prevention inspection activities, provide skills
training to their workers, etc.
Future Prospects: Government and Private Sector Partnership. The government can work with
the insurance industry to develop innovative disaster risk transfer solutions. The insurance
industry should continue to provide innovative insurance products and services. Insurance
Industry can provide more information services to insurance departments and policy holders,
conduct in-depth and forward-looking thinking, and create solutions to minimize the impact and
risk of climate change, urge policy holders to take preventive measures against adverse weather,
and reduce losses caused by meteorological disasters, so as to reduce the consequences caused
by the disasters. The insurance industry can help enhance knowledge nation-wide through
strengthening communication and contact with the news media, actively carrying out publicity
and education on climate change, and improve peoples’ awareness of climate change risk.
2005 Earthquake (Total Losses of 5.198 Billion $)
Estimated Cost of 2005 Earthquake
Sr. Category Cost in $ Cost in PKR
No.
1 Death & Injury Compensation 205 Millions
2 Relief 1,092 Millions
3 Early Recovery 398 Millions
4 Reconstruction 3,503 Millions
Total 5,198 Millions

Key Impacts of 2005 Earthquake

Indicators Estimated Loss
Area Affected 30,000 Sq. Km
Population Affected 3.2-3.5 Million
Deaths 73,000
Houses Destroyed 400,153

2010 Floods (Total Losses of 10.056 Billion $)

Estimated Cost of 2010 Floods
Sr. Category Cost in $ Cost in PKR
No.
1 Houses Damage 1.588 Billions
2 Health 50 Millions
3 Agriculture & Livestock 5.1 Billions
4 Private Sector (146 Industries, 100,000 hotels/shops) 109 Millions
5 Financial Sector (90 Banks, 10 ATMs) 674 Millions
6 Government Sector (1,457 Structures) 62 Millions

Key Impacts of 2010 Floods

Indicators Estimated Loss
Area Affected 100,000+ Sq. Km
Population Affected 20 Million
Deaths 73,000
Houses Destroyed 400,153
Agriculture (Cropped Land) 2.1 M Hectares
Livestock (No. of Animals) 1.5 Million

2014 Floods (Total Losses of 440 Million $)

Estimated Cost of 2014 Floods
Sr. Category Cost in $ Cost in PKR
No.
1 Houses Damage 126 Millions
 2 Health 27 Millions
3 Agriculture 109 Millions
4 Livestock 2.3 Millions
5 Community Physical Infrastructure 171.6 Millions

Key Impacts of 2014 Floods

Indicators Estimated Loss
Area Affected 100,000+ Sq. Km
Population Affected 2.47 Million
Deaths 367
Houses Destroyed 107,102

2022 Flood (Total Losses of 46 Billion $)

Estimated Cost of 2022 Floods
Sr. Category Cost in $ Cost in PKR
No.
1 Houses Damage 5.6 Billions
2 Agriculture & Livestock 37 Billions
3 Transport & Communications 3.3 Billions

Key Impacts of 2022 Floods

Indicators Estimated Loss
Population Affected 33 Million
Deaths 1,730
Total Infrastructural Damages Costs 14.9 Billion $
Economic Losses 15.2 Billion $
Reconstruction/Rehabilitation 16.3 Billion $