Enabling MFIs in Indonesia to cope with earthquakes

The provinces of Aceh and West Sumatra in Indonesia are highly prone to earthquakes. The devastation caused by the tsunami of 2004, which was triggered by a magnitude 9.1 earthquake, is still in everybody’s minds. Five years later, in 2009, an earthquake with a magnitude of 7.6 occurred 55 kilometres west of Padang, the capital of West Sumatra Province. It is estimated to have caused total losses of approximately USD 2.5 billion, of which only USD 55 million were insured.

Such earthquakes not only cost many lives and destroy homes and buildings, they also have serious consequences for economic growth and development in the region. Responding to this threat, we have partnered with PT Asuransi Wahana Tata (Aswata, www.aswata.co.id) and Mercy Corps (www.mercycorps.org.uk) in Indonesia to develop the first parametric insurance solution benefiting microfinance institutions (MFIs) in the area. It is triggered by the measured strength of an earthquake and then pays out automatically.

MFIs are crucial for economic development in the area because they provide credit and insurance to numerous small businesses that could not survive otherwise. As the insured MFIs receive emergency funds quickly in the event of a strong earthquake, they have the means to help their small business clients to stay afloat and rebuild. Swiss Re supports this innovative solution with product structuring, pricing and underwriting, as well as reinsuring the risk.