Sana Dokopa, a market vendor in central Port Moresby, the Capital of Papua New Guinea, runs her business with one eye on the weather.

Ms Dokopa sells food in Gordons Market, one of PNG’s most popular trading hubs and a haven for micro businesses.

She is watching for signs of heavy rain, which can flood the market and impact her business through reduced income and lower customer foot traffic.

“The flood carries all our market goods away and we make huge losses. There is no way to get those losses back,” Ms Dokopa said.

“It can take us two to three years to fully recover.”

The search for funds to meet post-disasters needs can sometimes become desperate and debt-inducing, she added.

As the president of the Gordons Market Vendors Association, Ms Dokopa has seen many other businesses suffer a similar plight during climate disasters events.

The lack of post-disaster recovery financing tools, such as parametric insurance of the kind available in Fiji, only compounds the challenge.

It forces market vendors like her to borrow from family, friends or expensive money lenders or deplete their savings to buy essential items, such as food and water, and revive their income source.

Another micro business owner, Lucy Wabi, who runs a small hardware shop in Port Moresby, shares this view. Ms Wabi said her family struggles to fund their immediate needs in the aftermath of a climate disaster.

“The most common disaster we face is heavy rain that leads to flooding.

Sometimes we cannot sell our goods, and it goes bad. We need money in those situations to help us to get new stock,” Ms Wabi said.

Stakeholder Roundtable
This month, experts at the national stakeholder roundtable on expanding superannuation and insurance coverage to the informal sector in PNG discussed some potential and practical solutions to help communities better manage the financial impacts of climate hazards.

One option discussed was parametric insurance, a novel solution that pays out claims based on ‘trigger’ events, such as a cyclone or excess rainfall, without the need for lengthy loss assessments.

It is a type of climate and disaster risk finance and insurance solution (CDRFI) that is inspired by the need for a rapid financial response to reduce humanitarian and economic losses after a disaster.

Parametric insurance is poised for expansion in PNG following the launch of a pilot by the UN Capital Development Fund’s (UNCDF) Pacific Insurance and Climate Adaptation Programme (PICAP), underwriter Pacific MMI Insurance Limited and Women’s Micro-Bank in December 2023.

A panel on the Essential Role of Parametric Insurance in Risk Management and Resilience Building in PNG emphasised the potential for such a product to expand insurance coverage to the mass market in the country, provided certain conditions are met.

“Pre-arranged financing can be crucial, in the form of parametric insurance, in case of extreme weather events,” said Shreya Rajpuriya, Climate Risk Insurance Analyst with UNCDF.

“Smallholders farmers, fishers, and women market vendors are the kind of customers that the product caters to.”

Building Trust
Panellist Lolesh Sharma, Chief Executive of Pacific Reinsurance, said in a country where 90% of informal sector workers do not have insurance coverage, building trust in the product and the industry will be critical to its success.

PNG’s informal sector is regarded as the economic backbone of the country but insurance penetration within it falls below the regional average.

“We want to make sure that the triggers are set in such a way, based on the modelling, that every three years there is some kind of payout,” Mr Sharma said.

“That’s what we have been doing in Fiji. This sustains the product and, more importantly, the people who receive the payout start believing in the concept of insurance.”

Questions about the sustainability of the insurance product and the obligations of the insurer naturally arise when talking about payouts.

Nilson Singh, PNG Country Director for BSP Life, said the regulators -- the Bank of PNG and the Office of the Insurance Commissioner -- had a crucial role in this regard to ensure insurers can fulfill their obligations to the consumers.

“That’s where it’s important that the business is well capitalised. That’s where the regulators come in: they need to make sure that any insurer that they approve to be licensed in PNG have sufficient capital in place,” he said.

Mr Singh’s comments underscore that for financial innovations to succeed in PNG, the support of an ecosystem of inter-connected partners from the public, private and development sector is a necessity.

UNCDF takes a market systems development approach in PNG to convene key market players and facilitates partnerships to pursue shared goals and development outcomes that contribute to growth and achievement of the SDGs.

Premium Funding
Another challenge the panel highlighted was premium funding to make CDRFI products more affordable and, by extension, more accessible.

“How are we funding the product?” asked Mr Sharma.

UNCDF’s parametric insurance initiative is market-based and is meant to be an affordable risk mitigation tool for low-income and climate-vulnerable communities.

In Fiji, VAT exemptions on the premiums of those products were granted by the Government to further reduce the costs.

According to UNCDF’s Ms Rajpuriya, the product available in PNG covers excess rainfall, drought, cyclones, and earthquakes and is tailored for micro-banks, microfinance institutions, development banks, provident funds, and agribusinesses.

It is somewhat of a foregone conclusion that certain households will require premium support to access the product. The panel discussed community-based risk-pooling, government and donor subsidies, and public-private partnerships as some potential solutions.

Pacific Re’s Mr Sharma proposed working with the superannuation funds to increase parametric insurance coverage in PNG in a way that aligns retirement savings with immediate financial protection needs.

“In Fiji, we are trying to work with the superannuation fund where the minimum wage earners will get parametric cover,” he said.

“The idea is that anyone who earns under FJ$10,000 a year will automatically get [parametric] cover, and the premium will be paid by the provident fund. Perhaps this is something PNG can explore.”

Making insurance products accessible to informal businesses
The ideas discussed on the panel focussed on innovative and realistic strategies to ensure those on the financial access periphery can benefit from the new products entering the PNG market and are not left behind.

For Ms Dokopa, Ms Wabi and their fellow micro business owners, these ideas coming to fruition would indeed make huge difference, accelerating recovery from extreme weather events and minimising the financial hardships

“We want [financial] products that are available to working class people or public servants to also be available to us in the informal sector because we are the backbone of this country,” Ms Dokopa said.

With the support of UNCDF and a motivated cast of partners now part of an ecosystem that is brimming with ideas, the future of parametric insurance looks bright PNG.

The pre-condition for success lies in ensuring widespread accessibility, building trust in the product and insurance industry, and creating tailored solutions that address the specific risks and needs of the most vulnerable.

As highlighted by the chair of the panel, Saliya Ranasinghe, Executive Director of the Centre for the Excellence in Financial Inclusion (CEFI) based in PNG: “My experience on parametric is that it is an ideal product that will definitely suit the mass market. This is quite a new thing in PNG, and I am sure in time it will be established in the country.”