Already today Colombia is severely exposed to natural disasters including floods, tsunamis and earthquakes. Intense rains that have been occurring in the framework of the winter wave 2019, have caused landslides, gales and floods after the overflow of the rivers Guaviare, Ariari and Guayabero, affecting over a third of the country’s municipalities and more than 45,000 families.
Due to climate change the frequency and severity of extreme weather events such as excess rainfall, flooding and landslides is expected to increase even further. Damages to crops and livestock but also income losses due to business interruptions put smallholder farmers and micro-entrepreneurs most at risk. Still, financial products to bridge income losses and immediate liquidity needs in the aftermath of natural disaster are hardly available for small entrepreneurs and smallholder farmers. Climate risk insurance can thus be an effective instrument to provide the necessary financial resources following adverse weather events and natural catastrophes.
With the objective to support the development of index-based insurance for micro-entrepreneurs and smallholder farmers in Colombia, the Frankfurt School of Finance and Management, as implementing agency of the InsuResilience Solutions Fund (ISF) signed a grant agreement with the joint partnership of the Microinsurance Catastrophe Risk Organization (MiCRO) and SBS Colombia S.A..
MiCRO was set up in 2011 by Mercy Corps in order to design and implement affordable and needs-based risk transfer solutions to the underserved population. Partnering with the local insurer SBS Colombia S.A., MiCRO intends to scale up its existing index insurance for small and medium-sized enterprises and farmers as well as to adjust the initial product to the needs of new aggregators’ clients. The initial product designed by MiCRO and SBS Colombia is being offered to clients of the local bank Bancamia since October 2019. The insurance products aim to protect micro-entrepreneurs and smallholder farmers against financial losses as a result of all natural hazards. With the aim of reaching 300,000 beneficiaries by 2022, the project offers a holistic solution that stabilises the income of vulnerable households, thereby strengthening their resilience. This will be achieved by combining the index-based insurance product with a value-added programme that helps raising awareness of disaster risk reduction.
The ISF has been set up and is funded by KfW on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ). It is a pivotal delivery channel of the InsuResilience Global Partnership, a joint initiative of the G20 and V20 to reduce vulnerability of poor and vulnerable. The ISF supports innovative climate risk insurance solutions to mitigate the negative impacts of climate change. It offers co-funding and advisory for the implementation of new climate risk insurance concepts into marketable products and the expansion of existing, sustainable climate risk insurance products. Under the condition that the applicants commit a meaningful own contribution of 50% of the requested funding, ISF provides grants of up to 2.5m EUR.