Rishi Ram was on the verge of harvesting his rice crop when Tropical Cyclone Ana tore through Northern Fiji in January 2021.

With little warning, the strong winds and heavy rain levelled his rice, vegetable and livestock farm and damaged his home.

Farming was the only source of income for Mr Ram and his family of eight, who live in Dreketi, a small district on Vanua Levu, Fiji’s second largest island.

The 50-year-old farmer left his teaching job this year to focus full-time on farming despite the yearly risks of cyclones and other natural disasters.

The damage caused by Category 2 TC Ana, just over a month after Category 5 TC Yasa, led to financial hardships for the family, stemming from income loss and high repair costs.

Mr Ram was faced with the impossible choice of repairing his home or investing whatever little money he had left into rebuilding his farm.

“I gave first priority to repairing, rebuilding and investing back into my farm while leaving my house in a partially damaged state,” he said.

Mr Ram is one of many rice farmers in Dreketi to have suffered from the increasing frequency and strength of cyclones and other extreme climatic events in the Pacific region.

The Fiji Rice Limited reported that farmers in the Northern Division incurred FJD$350,000 (~US$171,700) in losses due to tropical cyclones Yasa and Ana alone.

These farmers and other vulnerable groups such as women, youths and persons living with disabilities have little financial capacity to cope with the economic shocks that follow a cyclone.

For instance, there are no climate disaster risk insurance instruments that individuals, businesses, organizations, cooperatives, or others in the Pacific region can access.

This is concerning given that the UN considers the Pacific Islands as “among the most vulnerable in the world facing many natural hazards, such as cyclones, earthquakes, tsunamis and volcanic eruptions.”

Moreover, Fiji is ranked the 12th most hazardous country in the world by World Risk Index, and the frequency of cyclones and floods are expected to increase in the coming years due to climate change.

To address this persistent development challenge, the United Nations Capital Development Fund (UNCDF), in partnership with the United Nations University Institute for Environment and Human Security (UNU-EHS) and the United Nations Development Programme (UNDP) launched the Pacific Insurance and Climate Adaptation Programme (PICAP).

The initiative aims to improve the financial preparedness of Pacific households, small businesses, cooperatives and other organizations at the micro and meso levels.

PICAP will pilot, test and scale climate disaster risk financing instruments like parametric insurance that will offer immediate post-disaster payouts to those insured.

Working with Fijian private insurance companies, digital service providers and intermediaries such as cooperatives and associations, the Programme is developing index-based micro-insurance products targeting farmers, fishers, small businesses, market vendors and other vulnerable groups.

The insurance product will provide immediate cash liquidity post disasters to beneficiaries and will also support Fiji and the region’s efforts to build financial resilience in the face of natural disasters.

The Fijian Attorney-General and Minister for Economy, Aiyaz Sayed-Khaiyum, spoke about this at the recent virtual Leaders’ Summit on Climate convened by the United States Government.

“We are piloting a Parametric Climate and Disaster Risk Micro-Insurance Product which we hope can be scaled up in Fiji and to other small island developing states,” Mr Sayed-Khaiyum said.

As the concept and solutions are new to the region, the product will be trialed in Fiji and after establishing proof of concept and robust results, replicated and scaled to other Pacific countries.

The programme has been conducting a series of ‘ideation workshops’ with key stakeholders who have been identified as partners for implementation.
The PICAP team is also engaging with the Reserve Bank of Fiji (RBF) on regulatory aspects of the programme and the products that are planned for roll-out.

“The ideation workshops with potential grantees and partners is to lay a solid foundation for building strong partnerships during the implementation of the programme,” said PICAP Programme Manager, Krishnan Narasimhan. “It is a learning opportunity for all of us as we unpack the challenges of meaningfully reaching vulnerable populations and deliver benefits of climate and disaster risk financing and insurance instruments like parametric insurance.”

The feedback from partners such as Save the Children Fiji, Consumer Council of Fiji and the RBF has been positive so far, with many appreciating the opportunity to engage directly with the programme team.

Save the Children Fiji’s Chief Executive, Shairana Ali, said the workshops provided an opportunity to “gain a better understanding about parametric insurance and its value for under-served and vulnerable communities in Fiji.”
“Therefore, by working together with stakeholders, we see parametric insurance as a game changer for such communities as it will promote resilience and provide much needed financial assistance to communities,” Ms Ali added.

The Save the Children Fiji team during the first ideation workshop in Suva on
2 March, 2021
©UNCDF 2021

Vilimaina Dakai, the RBF’s Chief Manager Financial Institutions, said the ideation workshops have been “extremely useful” in developing a better understanding of regulatory approaches to parametric insurance.

“This being a first of its kind for Fiji and indeed the Pacific, we are supportive of the initiative and look forward to working closely with the PICAP team and other stakeholders,” Ms Dakai said.

Seema Shandil, Chief Executive Officer of the Consumer Council of Fiji, said the ideation workshop provided her team with “much-needed information and skills to empower consumers in the areas of digital, financial and insurance literacy and raise awareness on this excellent coping mechanism to risks from natural disasters.”

The Consumer Council of Fiji, with Chief Executive Officer Sheema Sandil (far right), participating in an ideation workshop in Suva on 8 April, 2021
© Consumer Council of Fiji 2021

The defining feature of parametric insurance is that it pays out the agreed amount when the event happens.

It has many advantages over indemnity-based insurance which focuses more on broad conventional areas such as physical losses and can be difficult to categorize.

Perhaps the biggest pull factor is the quick payout of claims, which can be processed within seven days after an event occurs, allowing beneficiaries to immediately begin recovery.

This is particularly attractive for farmers like Mr Ram, whose livelihoods are left in tatters after a cyclone.

Besides building financial resilience, it also ensure families do not fall deeper into poverty by being forced to sell off assets to cover losses.

Mr Ram attended an ideation workshop in Dreketi on 15 April and is looking forward to the product’s official launch, planned for the third quarter of 2021.

The Pacific Insurance and Climate Adaptation Programme and Fiji Rice Limited teams after the ideation workshop in Dreketi on 15 April, 2021
©UNCDF 2021

He believes it will improve the prospects for farmers by securing their assets and livelihoods.

“I have tried some forms of indemnity insurance but it has so many limitations like traditional assessments and long waiting periods,” he said.

“After hearing about this parametric insurance, I am really interested because one thing that I have noticed is that after a cyclone we usually don’t have cash and to get cash takes time.”

The Pacific Insurance and Climate Adaptation Programme receives financial support from the Governments of Australia, India and New Zealand.