Accra, Aug. 26, GNA – Stakeholders from selected state institutions have been trained in parametric insurance and disaster risk financing to strengthen Ghana’s financial preparedness and response to climate-related disasters, particularly flooding.
The four-day development programme, which commenced on Monday in the Eastern Region, also sought to strengthen institutional knowledge and practical capacity in disaster risk financing, flood risk modelling and the management of financial protection mechanisms.
It is organised by the National Disaster Management Organisation (NADMO), the Ministry of Finance and the United Nations Development Programme (UNDP),
Participants include staff from the Departments and Agencies (MDAs), NADMO, the National Insurance Commission (NIC), Ghana Statistical Service (GSS), National Development Planning Commission (NDPC), Ghana Hydrological Authority and Metropolitan, Municipal and District Assemblies (MMDAs) within the Greater Accra Metropolitan Area.
Dr Yazidu Ustarz, a consultant, who took participants through the principles of parametric insurance on the second day, explained how predefined triggers could determine insurance payouts.
He said, unlike conventional insurance, parametric insurance based payouts on the occurrence of a measurable event reaching an agreed threshold, rather than an assessment of the actual damage suffered.
Using flooding as an example, Dr Ustarz said a parametric flood insurance policy for an institution such as NADMO could specify a particular rainfall or river-level threshold.
Once the agreed threshold was reached, based on data from an approved weather station, satellite or other agreed measurement system, the insurer could make the predetermined payment without necessarily sending an adjuster to assess the physical damage.
Dr Ustarz said the central question in parametric insurance was whether the agreed event had reached the predetermined trigger, adding that parametric insurance could cover a range of risks, including floods, droughts, hurricanes, strong winds, agricultural losses, earthquakes and travel or aviation disruptions.
He also explained that drought insurance, for instance, could trigger a payout when rainfall fell below a specified level, while flood insurance could pay when rainfall or river levels exceeded an agreed threshold.
He identified faster payouts as one of the major advantages of parametric insurance, since the payment mechanism was linked to independently verifiable data rather than a lengthy claims assessment.
Dr Ustarz, however, cautioned participants about basis risk, which occurred when an insurance trigger did not perfectly correspond with the actual loss suffered.
He said a policyholder could experience significant damage without the agreed trigger being reached, resulting in no payout.
Conversely, a trigger could be reached when the actual impact of an event was relatively small, resulting in a payout despite limited losses.
Dr Ustarz, therefore, stressed the need for appropriate triggers, measurement systems and thresholds when designing parametric insurance products.
Dr Amina Sammo, National Coordinator of the Insurance and Risk Finance Facility (IRFF) at UNDP Ghana, described disaster risk financing as more than a financial instrument, saying it was an important component of sustainable development.
She said millions of people remained vulnerable to disasters and that a single flood, failed harvest or other economic shock could wipe out years of progress made by families and communities.
Dr Sammo said resilience depended on strong institutions, effective policies, reliable data, early warning systems and financial mechanisms that enabled individuals, businesses and governments to recover more quickly after disasters.
She identified disaster risk financing as a critical tool for protecting livelihoods, supporting small businesses, encouraging farmers to invest with greater confidence and helping governments manage the fiscal risks associated with disasters.
According to her, UNDP, through its Insurance and Risk Finance Facility, continued to work with countries around the world to strengthen financial resilience through innovative insurance and risk financing solutions.
The training is on the topic: “UNDP Ghana Capacity Development Training on Disaster Risk Financing, Flood Risk Modelling, Technical Assistance Deployment and Payout Management.”
GNA
Edited by Kenneth Odeng Adade