Insurance to Mitigate Vulnerabilities

Table of Contents

Challenges in Realising Disaster Risk

Many citizens underestimate the personal impact of disasters, believing they only affect others.
However, devastating disasters, such as earthquakes, can affect anyone, potentially rendering even middle-class individuals homeless.
Disasters can severely hinder national economic aspirations, such as achieving a $5-trillion or $10-trillion economy, by causing downturns that affect poverty alleviation efforts.

National security is often viewed in terms of border safety, but ensuring human security is equally critical.
Disasters directly impact the nation’s ability to secure its aspirations, making disaster risk management a crucial component of national security.

The importance of disaster risk insurance is highlighted in Prime Minister Narendra Modi’s Ten-Point Agenda for Disaster Risk Reduction (DRR), outlined at the 2016 Asian Ministerial Conference on DRR.
- The second point emphasises the need for risk coverage for everyone, from small households to multinational companies.
Risk coverage has two aspects:
- Physical safety through mitigation efforts, early warning systems, and disaster response.
- Compensation for losses through insurance, as the state alone cannot fully rebuild lives and infrastructure after disasters.

Around the world, disaster-related insurance helps countries recover quickly, allowing for a realistic adherence to the principle of “build back better.”
Insurance companies have analysed disaster risks professionally and identified viable business models for disaster-related insurance.
India’s National Disaster Management Authority (NDMA) recently hosted a workshop with insurance companies and financial experts to explore disaster insurance models.
These discussions have led to the consideration of instruments like parametric insurance – where insurance payouts are based on pre-agreed parameters for disasters which reduce bureaucratic delays.

Disaster risk insurance plays a vital role in enhancing human security, which directly influences national security.
Vulnerable populations displaced by disasters are often targeted by radical ideologies that lead to illegal migration and social unrest in recipient regions.
The example of Bangladesh in 1991, when 1,40,000 people were killed and many more displaced by a super cyclone. This shows how lack of human security can foster instability.
Similarly, the 2010 Haiti earthquake (measuring 9 on the Richter scale) resulted in 316,000 deaths and significant migration. It is still affecting the US today.
Africa’s frequent droughts have severely impacted countries like Somalia, Sudan, and Western Sahara, contributing to societal turbulence and pushing these nations into debt traps.

Pakistan presents a concerning example of how disaster-related displacement can lead to exploitation.
During the 1981 Soviet invasion of Afghanistan, 3 million Afghan refugees settled in camps along the Pakistan-Afghanistan border, many of whom later contributed to the rise of the Taliban.
In the wake of Pakistan’s 2022-23 floods, 2.6 million displaced people remain vulnerable, and there is concern that their insecurities could be exploited by radical elements, similar to what happened with Afghan refugees in the 1980s and 1990s.

With increasing climate variability, disaster risk insurance should be prioritised globally to safeguard human security and mitigate the impacts of future disasters.
Governments and international bodies must focus on human security to prevent the rise of radical movements and instability, as seen historically in disaster-prone regions.