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WorkingPaper
AnExploratoryAnalysisintoUrbanIndex-basedMicroinsuranceforFloodRiskinNairobi:Acommunity-basedapproach
PatrickTarbuckKingsCollegeLondon
12/01/2018
PATRICK TARBUCK ii
Abstract Climate change continues to amplify vulnerability in low-income communities across Nairobi, with many urban livelihoods at great risk to the impacts of flooding. This study explores the scope for index insurance in Nairobi for flood risk at the micro-level. Drawing from relevant academic literature, this paper considers the role of social capital and trust as an analytical framework for studying the interactions between the community and institutions for managing flood risk. Thus, the role of social capital and trust in improving accessibility, availability and inclusiveness of insurance will form the analytical framework around which the thesis of this dissertation will be based. 17 individuals from flood-prone areas in Nairobi, alongside 12 key informants from relevant organisations were interviewed. Through a contextual comparative analysis, this dissertation found that trust and capacity building play a dominant role in providing an enabling environment and creating a demand for IBMI.
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Table of Contents
Title…………………………………………………………………………………………………... i Abstract………………………………………………………………………………………………. ii
Table of Contents……………………………………………………………………………………. iii
List of Acronyms…………………………………………………………………………………….. v
Key Definitions………………………………………………………………………………………. vi
List of Figures…………………………………………………………………………………........... vii
1. Introduction……………………………………………………………………………………….. 1
2. Rationale for Research…………………………………………………………………………… 3
2.1 Introduction......................................................................................................................... 3
2.2 Climate Risk in Nairobi………………………………………………………………….. 4
2.3 Index Insurance…………………………………………………………………………… 7
2.4 Challenges and Limitations………………………………………………………………. 9
2.5 Mutual Microinsurance…………………………………………………………………… 10
2.6 Social Capital and Trust…………………………………………………………………... 11
3. Methodology……………………………………………………………………………………..... 15
3.1 Overview………………………………………………………………………………….. 15
3.2 Semi-Structured Interviews………………………………………………………………. 15
3.3 Positionality………………………………………………………………………………. 16
3.4 Sampling Methods………………………………………………………………………... 16
3.5 Secondary Data…………………………………………………………………................ 18
3.6 Challenges………………………………………………………………………………… 19
4. Results and Discussion …………………………………………………………………………… 20
4.1 Introduction……………………………………………………………………………….. 20
4.2 Trust………………………………………………………………………………………. 21
4.2.1 Communal Culture and Practices………………………………………………. 21
4.2.2 Informal and Formal Trust-Building………………………………….................. 23
4.2.3 Enabling Environment for Mutual Microinsurance………………………………. 24
4.3 Capacity Building…………………………………………………………………………… 26
4.3.1 Community Perception and Awareness…………………………………………... 26
4.3.2 Affordability and Accessibility…………………………………………………… 27
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4.3.3 Building an Insurable Population…………………………………………………. 29
4.4 Technical Input……………………………………………………………………………… 30
4.4.1 Infrastructure……………………………………………………………………… 30
4.4.2 Stakeholders………………………………………………………………………. 31
4.4.3 Transformative Technology………………………………………………………. 32
5. Conclusion…………………………………………………………………………………………… 33
Reference List…………………………………………………………………………………….......... 35
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ListofAcronymsACREAfrica–AgriculturalandClimateRiskEnterpriseAfrica
ARC–AfricanRiskCapacity
CBII–Community-basedIndexInsurance
CCA–ClimateChangeAdaptation
CIC–CooperativeInsuranceCompany
CSR–CorporateSocialResponsibility
DFID–DepartmentforInternationalDevelopment(UK)
DRR–DisasterRiskReduction
DRM–DisasterRiskManagement
G7–Groupof7
GDP–GrossDomesticProduct
IBLI–Index-basedLivestockInsurance
IBMI–Index-basedMicroinsurance
ICMIF–InternationalCooperativeandMutualInsuranceFederation
INGO–InternationalNon-governmentalOrganisation
IPCC–IntergovernmentalPanelonClimateChange
IRA–InsuranceRegulatoryAuthority
KDI–KounkueyDesignInitiative
NGO–Non-governmentalOrganisation
SDGs–SustainableDevelopmentGoals
SDI–SlumDwellersInternational
SWM–SolidWasteManagement
TIA–TakafulInsuranceAfrica
UN–UnitedNations
UNFCCC–UNFrameworkConventiononClimateChange
UNISDR–UNInternationalStrategyforDisasterReduction
UrbanARK–AfricanRiskKnowledge
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KeyDefinitionsCapacity
Thecombinationofallthestrengths,attributesandresourcesavailablewithinanorganization,community
orsocietytomanageandreducedisasterrisksandstrengthenresilience(UNISDR,2009).
DisasterRiskManagement
Disasterriskmanagementistheapplicationofdisasterriskreductionpoliciesandstrategiestoprevent
newdisasterrisk,reduceexistingdisasterriskandmanageresidualrisk,contributingtothestrengthening
ofresilienceandreductionofdisasterlosses(UNISDR,2009).
DisasterRiskReduction
Disasterriskreductionisaimedatpreventingnewandreducingexistingdisasterriskandmanaging
residualrisk,allofwhichcontributetostrengtheningresilienceandthereforetotheachievementof
sustainabledevelopment(UNISDR,2009).
IndexInsuranceIndexinsuranceisarelativelynewbutinnovativeapproachtoinsuranceprovisionthatpaysoutbenefits
onthebasisofapredeterminedindex(e.g.rainfalllevel)forlossofassetsandinvestments,primarily
workingcapital,resultingfromweatherandcatastrophicevents,withoutrequiringthetraditionalservices
ofinsuranceclaimsassessors.Italsoallowsfortheclaimssettlementprocessestobequickerandmore
objective(IFC,n.d).
Microinsurance
Microinsuranceisaformofinsurancethatisaimedatprovidingeasieraccessibilityandaffordabilityforlow
incomehouseholdswithinsuranceagainstnaturaldisasters(UNFCCC,n.d).
Mutual
Amutualisanautonomousassociation/organisationoflegalentitiesorpersonsoperatingin(and
sometimesacross)differentsectors,includinghealthcare,banking,insuranceandmanyothers.The
primarypurposeofthemutualistosatisfyitsmembers’commonneeds,ratherthantomakeprofitsor
provideareturnoncapital.Mutualorganisationsarerunforthebenefitofitsmember-owners,asopposed
tobeingownedandcontrolledbyoutsideinvestors(SwissRe,2016).
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Resilience
Theabilityofasystem,communityorsocietyexposedtohazardstoresist,absorb,accommodate,adaptto,
transformandrecoverfromtheeffectsofahazardinatimelyandefficientmanner,includingthroughthe
preservation and restoration of its essential basic structures and functions through risk management
(UNISDR,2009).
Risktransfer
Theprocessofformallyorinformallyshiftingthefinancialconsequencesofparticularrisksfromoneparty
toanother,wherebyahousehold,community,enterpriseorStateauthoritywillobtainresourcesfromthe
otherpartyafteradisasteroccurs,inexchangeforongoingorcompensatorysocialorfinancialbenefits
providedtothatotherparty(UNISDR,2009).
Vulnerability
The conditions determined by physical, social, economic and environmental factors or processeswhich
increase the susceptibility of an individual, a community, assets or systems to the impacts of hazards
(UNISDR,2009).
ListofFigures
Figure1(pp.5)–Graphillustratingtheeconomicimpactofanaturaldisasteronhouseholdswithdifferent
assetpositions(Skeesetal,2006:pp.4)
Figure2(pp.7)–Insurancedensityandpenetrationinemergingmarkets,2016(SwissRe,2017:pp.37)
Figure3(pp.8)–Thepromotionalfunctionofclimateriskinsurance(Whalley,2016:pp.12)
Figure4(pp.13)–DimensionsofSocialCapitalattheCommunityLevel(Woolcock&Narayan,2006:pp.9)
Figure5(pp.16)–MappingtheApril2016FloodingfromOnlineSources(Taylor,2016)
1.Introduction
Therehasbeenanincreaseinextremeweathereventsoverthepasttwentyyears,withover4.4
billionpeopleaffectedand1.3millionkilled(UNISDR,2013;Ana-Gonzalez&vonDahlen,2015).
WhilstDRReffortshavehelpedreducelossoflifeoverthepastdecade,lossoflivelihoodsand
assetshaveamplified (Em-dat,n.d.). Sub-SaharanAfrica remainsoneof themostvulnerable
regions to climate change, with an increase in the intensity of droughts and heavy rainfall
providing significant challenges to vulnerable livelihoods in the region (Niang et al, 2014).
Consequently,rurallivelihoodoptionsarebecominglimitedandmanypeoplearemigratingto
urban areas in favour of more diverse and sustainable livelihood opportunities (World
Population Review, 2016; Janzen & Carter, 2013). However, adaptive capacity to extreme
weathereventsinurbansub-SaharanAfricaispoor(Egondietal,2012;KDI,2015;Revietal,
2014)andthereisagrowingneedtobetterprotectpoorurbanlivelihoodsfromtheperilsof
climatechangethroughmoreeffectiveDRM.
Insurancecanprovideasafetynettothosewhoaremostvulnerabletotheimpactsofclimate
change. Specific to climate-relatedhazards, index insurance is aperfect tool toenhance the
progressofDRR,CCAandtheSDGs,asittranscendsthegoalsofallthree.Actingasaformof
socialsecurity,indexinsurancecanprovidefinancialrelieffromtheshockandstressofextreme
or frequentweather events. There is an urgency for greater insurance penetration in developing
countries toenhance riskmanagement strategiesbefore the impactof catastrophicdisasters suchas
floodinganddrought.TherearecurrentlynumerousestablishedprojectsforruralIBMIinSub-Saharan
Africa(Meze-Hauskenetal,2009;Macmillan,2014;Greatrexetal,2015;Whalley,2016),particularlyfor
agriculture such as cover for livestock and crop-yields. ARC for instance, are very prominent here.
However,littlehasbeendonetoprovideindexinsuranceforlow-incomepopulationsinurbanareas.This
lackofsocialprotectionisofgrowingconcern,withthepotentialcatastrophicimpactsofclimatechange
coupledwithexponentialgrowthoftheurbanpopulationinsub-SaharanAfrica.
ThisstudydoesnotaimtotakeattentionawayfromruralindexinsuranceprojectsinKenyaand
coverageshouldbeexpandedacrosssub-SaharanAfricatobetterprotectsmallholderfarmers
fromextremedrought and floods.However, theapplication for index insurance in anurban
contexthasnotbeenreadilyexploredandthisstudyseekstoconceptualizeitsuseforurban
livelihoods.Indexinsurancecanbemoreeasilyappliedtoagriculturallossesinrurallivelihoods,
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ratherthanurbanlivelihoods.Moreover,thenecessarytechnologyinurbanareashasnotbeen
readilyaccessibleuntilmorerecently,whichhasperhapsdiscouragedstudiesofindexinsurance
application for urban livelihoods. This dissertation will seek to explore whether there is an
enabling environment for urban index insurance at the community level for protecting SME
ownersandworkersfromlossofincome.Itwillnotdelvetoodeeplyintothetechnicalfunctions
and requirements needed tomake it work such as funding, premium collection and claims
payments.Furtherstudiesshouldbedonetoexplorethesetechnicalvariabilitiesandexpertise
inrelevantfieldsshouldbeappliedtoreachconclusionsinthisspace.Instead,thispaperseeks
to identifythechallengesofcreatingdemandfor insuranceandscalingupcoverage,withan
analyticalframeworkbuiltaroundtrustandcapacitybuildingrespectively(Woolcock&Narayan,
2006;MladovksyandMossialos,2008;Greatrexetal,2015;Morsink&Guerts,2011).Existing
informalsocialsavingsandrisksharingplatformsinKenyaformthebasisofcommunity-based,
mutualentities.Thus,theroleofmutualmicroinsuranceforaddressingthesechallengeswillbe
consideredhereafter.
This paper will identify relevant case studies of both pilot and established index insurance
schemes inKenya,Bangladeshand India todevelopa framework for analysis.Alongside the
UrbanARKproject,Iwillusequalitativeresearchtoconsiderboththefeasibilityofanddemand
forIBMIinNairobi,Kenya.CasestudiesofmutualandcooperativemicroinsurancefromIndia
and Kenya will be used to develop a conceptual framework for analysis, where ideas and
conceptswillbedrawn fromcomparativestudiesof ruralandurbanschemes.Moreover,an
establishedurbanprojectinBangladesh,setupbyOxfamtoprovidecoverforfloodingthrough
a Meso-level index-based insurance, will be drawn upon to provide parallels of efficacy in
Nairobi.HereIwilluseacomparativecontextualanalysisofcontrastingindex-basedinsurance
methodstobuildaconceptual frameworkaroundwhichtheir impactwillbe individuallyand
collectivelymeasuredacrossacomparativestructure.Inaddition,thispaperseekstoidentify
whethertherecanbeasustainablelong-termbusinessmodelforIBMIindevelopingcountries
as an alternative to the disaster response financial mechanisms implemented by NGOs,
internationalorganisationsandgovernments.
ResearchObjectives
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RO1:Explorethepotentialanddemandforindex-basedmicroinsuranceforfloodriskinNairobi
toprotecturbanlivelihoods.
RO2: Identify the role of mutual microinsurance for the provision of Urban Index-based
microinsurance.
RO3: Investigate the role of trust within the framework of social capital for limiting the
effectivenessofcommunity-basedandmutualmicroinsurance.
2.RationaleforResearch
2.1Introduction
Thissectionofthedissertationprovidesanopportunitytoreviewtheliteratureandhighlight
the gaps in current understanding of the research topic. Five themes will be addressed
throughoutthissection:ClimateriskinNairobi;abackgroundofindexinsurance;challengesand
limitationsof index insurance; a community-based,needs-drivenalternative; and the roleof
socialcapitalandtrustincommunity-based,mutualmicroinsurance.ClimateriskinNairobiwill
beexploredingreaterdepth,withexposuretofloodriskidentifiedasoneofthebiggestthreats
tourbanlivelihoods.Rapidurbanizationandmoreintenserainfallputsthousandsoflivelihoods
atrisk.CopingwiththestressofnaturalhazardsfallsundertheremitofDRMandCCA,butthis
paper also argues for the role of sustainabledevelopment as an integrated approach. Index
insurance is an important risk transfer mechanism to protect, promote and transform
sustainableurbanlivelihoods(Whalley,2016).Overthepastdecade,therehasbeenanincrease
inruralindexinsuranceprojectsacrossthedevelopingworld(Johnson,2013;Meze-Hauskenet
al,2009),butanexplorationintoindexinsuranceforprotectingpoorurbanlivelihoodsisstill
relativelyunfamiliarandidentifyingthefeasibilityofpotentialprojectswillbestudiedinfurther
detail.However,thereareorganizationalchallengesandlimitationstoindexinsurancesuchas
basis risk, transparency and accountability. This paper will review literature on community-
basedalternatives tonegate theseorganizational challenges.Case studieswill beused from
mutualmicroinsurance and community-based initiatives includingUpliftMutual community-
based health insurance in India andMeso-Level index-based flood insurance in Bangladesh.
Thesecasestudieswillprovideinsightintothemulti-facetednatureofindexinsuranceandthe
characteristicsneededtomakecomparableprojectswork.Woolcock’s(1998,2001,&Narayan,
2006) framework for social capital implemented by Mladovksy and Mossialos (2008) for
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measuringcommunity-basedhealthinsurancewillbedrawnupon.Theroleofsocialcapitaland
trustinimprovingaccessibility,availabilityandinclusivenessofinsurancewillformtheanalytical
frameworkaroundwhichthethesisofthisdissertationwillbebased.
2.2ClimateRiskinNairobi
TheimpactsofClimateChangearebeingseenacrosstheworld,butdevelopingcountriesare
recurrently bearing the brunt of these consequences. Extreme weather events continue to
increase in intensity and frequency because of climate change (IPCC, 2012; EM-DAT, n.d.;
Stocker, 2013). Africa is one of themost vulnerable continents to climate change, asmany
countrieshavehighexposureandlowadaptivecapacitytonaturalhazards.Inaddition,rapid
urbanizationacrossSub-SaharanAfricaisamplifyingvulnerabilityatcommunitylevel,through
poorlandmanagementandinformalsettlements(Cutteretal,2012;Pellingetal,2008;Baker,
2012).Heavyrainfallanddroughtshavebeenmorefrequentinthepastthirtytosixtyyearsover
EasternAfrica,whichposesgreatchallengesforDRRandCCAefforts(Niangetal,2014).Bythe
end of the 21st century, many regions will experience ‘1-in-20-year annual maximum daily
precipitationamounts’everyfivetofifteenyears(IPCC,2012:pp.11),with‘moreintensewet
seasons’acrossEastAfrica(Niangetal,2014:pp.1210).
Copingwiththeshockandstressoftheseincreasinglyfrequentweathereventsisputtingastrain
onthealreadywaningfinancialandsocialcapitalinpoorercommunities.Lowandmiddleincome
countrieswitnessgreatereconomiclossesinproportiontoGDPthanhighincomecountriesand
thereisagrowingneedtobetterprotectthelivelihoodsandassetsofvulnerablepeopleagainst
the perils of extreme weather events (IPCC, 2012: pp.7; UNFCCC, n.d; Collier et al, 2012).
Livelihoodsinsub-SaharanAfricaareconstantlyatthreattoclimatechangeandwithmorethan
halftheworld’spopulationlivinginurbanareas(Doig&Ware,2016),effortstobreakthecycle
of riskaccumulationarevital indecreasingvulnerability (Morton,2007;Dodmanetal,2016;
Revi et al, 2014). Urbanisation continues to increase at an exponential rate, particularly in
Nairobiwhichishometo3.5millionurbanresidents.Over2.5millionofthoseresidentscurrently
living in urban slums (World Population Review, 2016),where adaptive capacity to extreme
weatherevents ispoor(Egondietal,2012;KDI,2015;Revietal,2014).Heavyrainfallacross
Nairobi in April 2016 displaced thousands of people and provided a stark reminder of the
catastrophicnatureoffloodingandthesignificanceofbuildingurbanresilience(Davies,2016;
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Taylor,2016).Blockeddrainagesmean intensefloodinganddestructionto infrastructurecan
causewaterscarcityandspreadofdisease,whichspreadsrapidlyacrossurbanslums.Therisks
associatedwithheavyrainfalldrasticallylimitstheadaptivecapacityofpeoplelivinginurban
slumsandtheirabilitytorecover(Baker,2012:pp.39).
Figure1.AdaptedfromCarteretal(2005)bySkeesetal(2006)toillustratetheroleofindexinsuranceforprotecting
assetsafteranextremeweatherevent.
Inform(2017)indicateshighphysicalexposuretofloodriskinKenyaandbetween1990and2004
over2millionpeoplehavebeenaffectedbyfloodingacrossthecountry(KDI,2015;Jhaetal,
2012).Climatechangecoupledwithrapidurbanisationhasputthousandsofhouseholdsatrisk
to flooding,particularly alongside rivers inNairobi,where rent is cheaper (KDI, 2015).Many
vulnerable communities do not have access to the necessary social protection from natural
hazardsformanagingdisasterrisk(Wisneretal,2004;Collieretal,2012),whichplacespressure
onhouseholdstofallbackonexistingfinancialandsocialassetstoliftthemselvesoutofcrisis.
Intheaftermathofadisaster,householdsfallbackonamultitudeoffinancialandsocialcoping
strategiessuchas:mobilisinghouseholdlabour;reducingexpenditure;sellingassets;consuming
stocks and savings; and borrowing food from friends and family (Adger et al, 2009; Smit &
Wandel,2006;WorldBank,2010).Onetoolformanagingtherisksofdisastersandrelievingthe
burdenofdebtindevelopingcountriesismicroinsurance(Janzen&Carter,2013;Skeesetal,
2006;Carteretal,2005;seeFigure1).
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TheSendaiFramework(UNISDR,2015)andCOP21(UNFCCC,2015)bothcitetheimportanceof
insuranceforenhancingDRRandCCAeffortsindevelopingcountries.EmergingoutofCOP21,
theG7Insuresilienceprojectaimstoprovideclimateriskinsuranceforupto400millionpeople1
livinginregionsvulnerabletoclimatechange(UNFCCC,2015).InsuResiliencewillusealternative
risktransferschemessuchasWeatherIndexinsurance,parametricinsuranceandcatastrophe
bondstomeasuretheestimatedlossandoftencalculatepayoutsbeforeanextremeclimatic
event (UNFCCC, 2015;UNFCCC,n.d.). Thus, the insurance industryhasbeen thrust onto the
globalpoliticalagendaasameansofmitigatingtheimpactsofextremeandfrequentweather
events(Surminski,2013;Artemis,2015;seealsoAsthana&Wintour,2017).Despitethis,Swiss
Re (2017) figures show that insurance density and penetration in developing countries,
particularlyKenya(seeFigure2),isstillrelativelylow.
1 This target is split into two approaches: 300 million people through sovereign-level disaster insurance (ARC and CCRIF) and 100 million through the private sector.
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2.3IndexInsurance
Before the introductionof index insurance, indemnity insurancemanaged the riskofnatural
catastrophes.However,indemnityinsuranceisdesignedtoprotecthouseholdsagainsttheloss
ofaspecificasset,ratherthanaspecificeventandpolicyholdersarepaidoutweeksafteraloss
(GlobalAgRisk,2012).Indexinsuranceseparatesindemnificationfromproduction,whichmight
resultinlowercostsandmoreapparentriskmanagementthantraditionalindemnityinsurance
(Coleetal,2012;GlobalAgRisk,2012;IRI-USAID,2013;Crichton,2008).Timelypayouts,lower
moral hazard, lower administration costs andmore transparency are among the benefits of
indexinsurance(Skeesetal,2006;Collieretal,2009;UNU-EHS,2017).Payoutsaredependent
onaphysicaltriggersuchasrainfallorwind-speed,ratherthanindividuallosses.Thisremoves
Figure2. SwissReSigma (2017)graph showing insurancedensityandpenetration indevelopingcountries
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theelementofsubjectivity,asonceanindex istriggeredthepayout isadministeredexante,
irrespectiveofassetlossordamage.Thus,indexinsuranceprovidesasafetynet,makingiteasier
forhouseholdstocopewiththeimpactsofnaturalhazardswithoutthefinancialburdenofdebt
(Hellmeuthetal,2009;Whalley,2016).
Advancesinscientifictechnologyandtheavailabilityofsatelliteimageryformeasuringrainfall
variabilityandcrop-yields for instance,havereducedthepreviouslyhightransactioncostsof
indexinsuranceandthusexpandeditsreachtomanypeoplewhowerepreviouslyconsidered
uninsurable(Greatrexetal,2015;DevelopmentInitiatives,2017).TIAinKenya,forexample,use
satellite imagery to track levels of foliage for livestock in semi-arid and arid drought-prone
regionsofWajirCounty.Oncetheconditionssurpasstheindextrigger,pastoralistsandfarmers
areimmediatelycompensated,whichhelpsbuildconfidenceandtrustbetweentheinsurerand
policyholder(Macmillan,2014).Consequently,therehasbeenevidenceofsmallholderfarmers
acrossdevelopingcountriestakingmoreclimate-smartriskswiththeiragriculturalmethodssuch
as crop diversification and production, which is a great example of the promotive nature
attachedtoindexinsurance(seeFigure3;Whalley,2016;Barrettetal,2007;Warneretal,2009;
Lashley&Warner,2015;UNFCCC,n.d.;Carter&Janzen,2012).
There has been an increase in index insurance projects across the developing world for
protectingrurallivelihoods(Johnson,2013;Peterson,2012;Meze-Hausken,etal,2009;seealso.
Figure 3. Whalley (2016: pp.12) illustrating the transformative and promotive function of Climate Risk Insurance
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GIIF,n.d.),withmacro-levelprojectssuchasACREAfrica(KilimoSalama)inKenya,Tanzaniaand
RwandaandARCprovidingcoverageacrosssub-SaharanAfrica(Greatrexetal,2009;Whalley,
2016).However,thereislimitedliteratureorcasestudiestoapplyitsuseforprotectingurban
livelihoods. With the growing success of index insurance projects for smallholder farmers,
parallelsshouldbedrawnfor low-middle incomeurbanlivelihoodsinNairobi(UNISDR,2015;
Whalley, 2016). Oxfam recently launched a Meso-Level Flood Index Insurance project in
Bangladesh to protect river-basin people in the flood-prone region of Sirajganj. Payouts are
triggeredbasedonwaterdepthanddurationoffloodingandimplementedthroughalocalNGO,
who distributes the funds to the households falling within the affected areas (Desai, 2013;
Oxfam,2013).Twoyearsafteritsinceptionin2012,700ofthe1661insuredhouseholdswere
paidout,allowingthemtorebuildtheirliveswithouttheburdenofdebt(SwissRe,2014).Nairobi
hasfourmainrivers(Ngong,Nairobi,MathareandMgathi)posinghealthandsafetyhazardsfor
nearbyhouseholds(Weru,2012),whichmakesOxfam’sframeworkforsuccessinBangladeshan
importantrhetorictotakeforwardforpotentialprojects inNairobi.Whilstagriculturalassets
areeasiertomeasurethroughapredeterminedindex,lossoflivelihoodthroughurbanfluvial
andpluvialfloodriskprovidesamoredifficultchallenge.
2.4ChallengesandLimitations
Index insurance is not appropriate for slow onset events such as SLR, nor is it an all-
encompassing solution for ending poverty (Whalley, 2016; Skees, 2008; Skees et al, 2006).
However, it is a vital tool in providingex anteprotection fromnatural hazards,whichhelps
reducevulnerabilitytodisasters.BasisRisklimitstheeffectivenessofindexinsurance,asthere
isoftenadisconnectbetweenthedataavailableandthelossesexperienced,whichdamages
trust networks between the insurer and policyholder (Bauchet, 2013). In addition, Johnson
(2013:pp.2667)claimstheindividualmustaccept‘somedegreeofbasisrisk’forindexinsurance
tobestructurallydependent,whichshifts theburden from institutions to individuals (Skees,
2008).Whileclimatechangeisaproductofdevelopedcountries’consumptionpatterns(Hulme,
2009), individuals indevelopingcountriesarecontinuallyexpected tobear theownershipof
climateriskandthis isdeepeninginequalitiesandfurtheringclimateinjustice(Reeves,2016).
Moreover,almostallthecurrentestablishedprojectsfallundertheremitofMacro-Levelindex
insurance, where governments and institutions are in control of administering payouts and
implementingthedesignandtechnicaloutputoftheinsuranceproduct(Reeves,2016;Collieret
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al,2009).TransparencyandaccountabilityattheMacro-Levelcontinuestoposeproblemsfor
establishedprojectsacrossthedevelopingworld(Reeves,2016;Caietal,2009).
Whalley(2016)suggeststhatforindexinsurancetoworkforthemostvulnerablecommunities,
theinsuranceindustryneedstobecommittedtoatransitionfromaprofit-drivenagendatoa
needs-based agenda (see also. Jansen et al, 2011). Furthermore, insurance needs to work
alongsideadditionalservicessuchaseducatingcommunitiestoenhancedisasterpreparedness;
building flood defences; improving waste management; community policing; and water
sanitation (Baker, 2012;Muindiet al, 2016). Index insuranceneeds touse a combinationof
capacitybuildingandraisingawareness tobuild insurance-friendlypopulationsandminimize
riskforsubsequentnaturalhazards(Surminski,2013;Reeves,2016).Climatechangeisawicked
issue; the stakes are high and decisions are urgent,whichmeans insurers and international
developmentagencieshaveaddedpressuretomakeindexinsuranceworkforthepoorestand
mostvulnerableinsociety.Linnerooth-BayerandMechler(2008)putforwardtheideaoffour
models for theprovisionofmicroinsurance:FullServiceModel;ProviderModel;Community-
basedmodel;andPartner-agentmodel.Community-based,member-ownedinitiativesarewell
servedtoimplementIBMIandthispaperseekstofillagapintheliteraturefortheprovisionof
mutualmicroinsurancefor low-middle incomeurbanpopulations.However,there isno‘one-
size-fits-allsolution’.Instead,localizedriskassessmentsareneededtodeterminethelocalneeds
andconditionsthatenableeffectiveindexinsuranceschemes(UNU-EHS,2017).
2.5MutualMicroinsurance
Thecommunity-basedmodelfallsundertheumbrellaofmutualmicroinsurance.Theinsurance
industry,overall, comesunder criticism fornotbeing inclusiveandprioritisingprofitsovera
needs-basedagenda,whichcanbedetrimentalforinsurancecoverageindevelopingcountries
(Whalley, 2016).Mutual microinsurance, however, is a bottom-up approach indicative of a
valuesandneeds-drivenagenda,whichcandeliveravaluableplatformforalleviatingpoverty
and enabling, educating and empowering local communities (ICMIF, 2015; Swiss Re, 2016).
Policy development in Kenya, on the other hand, is a top-down approach, where disaster
managementtendstobereactiveandad-hocratherthanembeddedwithindevelopmentefforts
(Pellingetal,2008).Inmutualmicroinsurancetheagentandthepolicyholderarestakeholders,
meaningthatdevelopmentcanbecontrolledbythecommunity,ratherthanimplementedby
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institutionsofgovernance(Reinhard,2006).Thishelpsaddressclimateinjusticeandcaninitiate
theprocessofadaptationtotransformation(Pelling,2010)neededtobuildresilienceinthemost
vulnerablecommunities.Reeves(2016)suggeststhatlocalmember-ownedgroups,backstopped
byequitably financedglobal socialprotection, canprovide thenecessaryplatform todeliver
mutualmicroinsurance. However, considering community-based initiatives as a ‘panacea’ to
DRMandCCAproblems isnot suitable (Allen,2006:pp.82), as theyneed to cooperatewith
systemsofgovernancetooperateeffectively(Wisneretal,2004;Cannon,2015).
Recently highlighted on the B20 agenda (ICMIF, 2016),mutualmicroinsurance is expanding
access to financialopportunities formarginalised communities and contributing towards the
SDGs (Swiss Re, 2016). ILO (2009) states that “63% of Kenyans derive their livelihoods
directly/indirectly fromcooperativebasedactivities”,which suggests theyarewellplaced to
enhance social cohesion and thus better protect collective assets (Kuria, 2011).Women are
amongst the most marginalised across the developing world (Demetriades & Esplen, 2008;
Wisneretal,2004;Doig&Ware,2016)andimprovingtheiraccesstofinancialopportunitiesis
embeddedwithin the ideology ofmutualmicroinsurance (ICMIF, 2016). For instance, Uplift
MutualsinIndiawasoriginallyformedbywomenself-helpgroupsandnowcoversover200,000
lives through a community-based model, where people come together to share, own and
manage risks (Uplift, n.d.; see also CARD MBA, n.d; Development Initiatives, 2017). Key
PerformanceIndicators(KPIs)forICMIF’s5-5-52strategyplaceanemphasisontheproportion
ofwomeninsured(ICMIF,n.d.).Additionally,greaterinsuranceliteracyneedstocooperatewith
developmenteffortsineducationacrossdevelopingcountriesandthisisbeingaddressedinboth
the5-5-5strategyandtheG7Insuresilienceproject(Surminski,2013;MCII,2015).Despitethe
apparent success of established health and life mutual microinsurance schemes for urban
populationsinIndia,KenyaandthePhilippines(Matuletal,2011),thereislimitedevidencefor
theuseof indextriggers intheeventofnaturalhazards.Thereafter, Iaimtofillagap inthe
literaturefortheprovisionofmutualindexinsuranceindevelopingcountries.
2.6SocialCapitalandTrust
2 ICMIF’s 5-5-5 Strategy aims to develop mutual microinsurance in five countries, reaching out to 5 million uninsured low-income households, (equating to 25 million individuals in total) through a three-phased approach: diagnostic research phase, an evidence-based strategy phase and a country intervention programme, which sees the strategy put into place.
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Riskisaccumulatedandperceiveddifferentlyacrossdifferentsocialandculturalgroups(Bull-
Kamangaetal,2003;Cannon,2015;Moser&Satterthwaite2010;Moser&Felton2007),which
ischallengingforhighlightingtherelevanceofinsuranceforDRM.Understandingthecapacities
andvulnerabilitiesembeddedwithincommunitiesiscentraltobuildingfloodresilience(ZFRP,
2017).Socialcapitalandtrustarefundamentaltothesuccessofthecommunity-basedmodel
(Blackburn, 2014; Cannon, 2008; Mladovsky & Mossialos, 2008). Both contribute to the
accessibility,availabilityandinclusivenessofinsuranceatthelocal-level.Drawingfromrelevant
academicliterature,thisresearchconsiderstheroleofsocialcapitalandtrustasananalytical
frameworkforstudyingtheinteractionsbetweenthecommunityandinstitutionsformanaging
flood risk. To answer theoretical questions using empirical qualitative data, theorymust be
drawnupontoinformdatacollectionandanalysis.Socialcapitalreferstothenetworks,norms,
values and trustunderpinninghumanandphysical capital in communities. Social capital has
beenusedtoincreasecollectiveproductivitybyimprovingtrustworthinessandsocialrelations
acrossthecommunity(Putnam,1993).
Building on Woolcock’s (1998; 2001; and Narayan, 2006) social capital framework used in
MladovskyandMossialos(2008)conceptualframeworkforcommunity-basedhealthinsurance
inlow-incomecommunities,thispaperwillexplorethevalues,communitygoalsandlocalpower
relationsdeterminingthesuccessofCBII.Woolcock’s framework looksat twotypesofsocial
capital at the micro-level: (i) relations within communities such as information channels,
trustworthiness and social support; and (ii) relations across communities such as social
inequalitiesinclass,ethnicityandgender(Mladovsky&Mossialos,2008;Woolcock,1998,2001;
Woolcock&Narayan, 2006). Focussing on these two factorswill provide an insight into the
importance of social capital for local-level DRM and consequently provide a platform for
analyzingthefeasibilityofIBMI.WoolcockandNarayan(2006:pp.9,seeFigure4.)claimthat
socialcapitalishighinboththesefactorswheremicrofinanceprogramshavebeensuccessful.
Thisdiagramreinforcesthestrengthofcommunitytiesinimprovingmicroinsuranceandthus
providesarelevanttheoreticalframeworkforthestudyofcommunity-basedmicroinsurancefor
extremeweathereventsinNairobi.
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Figure4.showsWoolcock&Narayan’s(2006)‘DimensionsofSocialCapitalattheCommunityLevel’and
identifiesthelinkbetweenhighsocialcapitalandsuccessfulmicrofinance
Additionally,Wisneretal(2004)‘AccessModel’willprovideaplatformforanalyzingthesocial
factors restricting access to social protection from hazards and limiting urban resilience.
Satterthwaite(2011)advocatestheuseofcommunity-basedorganisationstodirectlychallenge
thepowerstructuresthatpredominantlydetermineaccesstokeyresources.Baker(2012:pp.53)
claimsthatcommunitiesaremoreresilientwheresocialnetworksarestronger,whichmeans
accessibilitytosocialnetworksdeterminesadaptivecapacitytodisasterriskfortheurbanpoor.
Accesstosocialcapital,thereafter,facilitatescooperationandparticipationtocommunity-based
initiatives (Putnam, 1993, 1995) and trust within the community is a byproduct of social
limitations(Boumaetal,2008).Whilesome(Basaza,2008;Troyetal,2008)labelorganizational
andinstitutionalfailuresaskeytothelowenrolmentofcommunity-basedDRM,trustremains
anunderlyingproblem(Whalley,2016;Carrinetal,2005;Caietal,2009;Boumaetal,2008;
Zhangetal,2006).Poor trust-buildingwith institutions leads toa relianceon informal trust-
buildingwithincommunitiesforrisksharing(Morsink&Guerts,2011).Trustliesattheheartof
theinsuranceprocess(Greatrexetal,2015)andorganisationsneedtorealisethistoeffectively
reachtheiraimsofexpandingcoveragetothemostvulnerablecommunities.
While basis risk and transparency hinder the process of index insurance and damage trust
(Whalley,2016;Skees,2008;Reeves,2016;Johnson,2013;Bauchet,2013;Coleetal,2012),they
are also institutional problems and can be addressed by holding insurance companies to
account. Trust between individuals and social groups in the community is embeddedwithin
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social inequalities and directly hinders the impact of CBII (Cai et al, 2009, Kassahun, 2015).
Increasedcooperationandinclusivenessgohandinhand,butwherethereisalackoftrustwithin
thecommunitythereisalsoalackofcooperation(Boumaetal,2008).Iftheintersectionalityof
DRRanddevelopmentistobeembellished,socialdimensionsofcooperationandmutualityneed
to be explored in greater detail (Cannon & Müller-Mahn, 2010; Schipper & Pelling, 2011).
Discovering the key characteristics currently diminishing social capital across urban slums in
NairobiwillbenecessaryforanalyzingthefeasibilityofanIBMIproject.
Muindiet al (2016) considers the role of crime and conflict in contributing to poor DRM in
Nairobi.Manyhouseholdsdonotfeelsafeleavingtheirhomesinfearofhavingtheirpossessions
stolen and this heightens their exposure and vulnerability to natural hazards. Insurance
companiesincludingCICofferadditionalservicessuchascommunitypolicing,whichissetup
andrunforthebenefitofthecommunitytopreventpettycrimeandhelpminimizerisk(CIC,
n.d.).Thisdenotesthatwhileinsurancecanprovideanimportantfinancialsafetynetforpeople
tofallbackon, it issimplyatool inthebroaderarsenalofDRMand integratingthesemulti-
faceted components collaboratively is essential. Additionally, everyday life issues embedded
within urban livelihoods might prove more threatening than natural hazard risk (Pelling &
Wisner,2012),whichmakesownershipofinsurancemoredifficulttoencourage.
Powerrelationswithincommunitiesoftendeterminewhomakesdecisionsandthiscanhave
severerepercussionsforthosewithlimitedaccesstosocialcapital(Blackburn,2014;Cannon,
2008).With gender at the heart of inequalities in power, equitable representationmust be
realizedtocreateanenablingenvironmentforcommunity-basedinitiatives(Wilkinson&Pickett,
2009).Culturalandsocialfactorshereareintrinsicallylinkedandmustbeconsideredcollectively
tobetterincludeallmembersofthecommunityinthedecision-makingprocess(VanAalstetal,
2008; Cannon, 2008; Doig & Ware, 2016). To effectively undermine ineffectual courses of
governanceanddecentralizepowerbacktothecommunity,localparticipationmustunderstand
the potential for capacity building for integrating all members of society (Blackburn, 2014;
Mansuri&Rao,2012).Capacitybuildingisfundamentalforengagingpeopleandcreatingthe
demand for insurance,which is oneof the key challenges for scalingup insurance coverage
(Greatrexetal,2015;Miranda&Farrin,2012).Delegatingpowerandgovernancebacktothe
communitywillbecentraltothesuccessofindexinsuranceinitiatives(Miranda&Farrin,2012).
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3.Methodology
3.1Overview
Nairobi was identified for this study because rapid urbanization and the impacts of climate
changearecollectivelyamplifyingvulnerabilityforcommunitiesacrossurbanslums(KDI,2015).
TheUrbanARKproject isaresearchandcapacitybuildingprogrammeledbyProfessorMark
PellingatKing’sCollegeLondon.Theproject’smainobjectiveis“toreducedisasterriskinurban
sub-SaharanAfricabybreakingcyclesofriskaccumulation”(UrbanARK,n.d.).Myresearchwill
look to add to the research and policy publications for riskmanagement in the Urban ARK
project. Secondary data and 29 semi-structured interviews, with a combination of key
informants and participants, will make up my research methods. With the diversity of
participantsformyprimaryresearch,Ifeelthatanexploratoryframeworkforanalysiscanbe
derivedandbrokendowntoestablishtheroleofIBMIinNairobi.
3.2Semi-StructuredInterviews
For my primary research, I conducted 29 semi-structured interviews aimed at gauging
perceptions on the provision of IBMI and the challenges it may face in implementation.
Qualitative interviews offer a flexible alternative to the structured and rigid nature of
quantitativeinterviews.Althoughasemi-structuredformatmaynotoffermorereliabilityand
validitythanastructuredinterview,theinterviewsarelookingtogainagreaterunderstanding
oftherespondent’spointofview(Bryman,2001).Withamorerelaxedinterviewprocessthe
participanttendstobecomemorecomfortable,whichallowsformoreelaborateresponsesand
helpstheresearcherbetterinterpretthethoughtsandfeelingsoftherespondent.Perceptions
of the interviewee are shaped by their values, beliefs, behavior, relationships, places and
emotions,amongstothervariables.Thisissymbolicofsocialresearchmethodsoverallandthe
interpretivenatureofthesesemi-structuredinterviewswillplayalargeroleinmyfindingsand
conclusions(Longhurst,2003).Allinterviewswererecordedandtranscribed,wheretheyhave
beenusedappropriately toreinforcetheaimsofmyresearch. I spent justunderamonth in
Nairobiandconducted29(17participantsand12keyinformants)interviewsintotal.Thisisn’t
ahugeamountwithinthefieldofsocialresearch(Baker&Edward,2012),butunderthetime
andfundingconstraintsforamaster’sdissertationitwasbothrealisticandsufficient.
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3.3Positionality
Itiscriticaltoremainobjectivethroughouttheprocessofqualitativeresearch.Theparticipant’s
perceptionscanoftenbeinfluencedbytheepistemologicalstandpointoftheresearcher(Cloke
et al, 2004). Therefore, striking a balance between respondent detail and interviewer
questioningiscriticalinreducingpositionalbiasandincreasingthecredibilityoftheinterview
process. My professional background in mutual and cooperative insurance has shaped my
positiononthetopicandshouldbeacknowledgedhereafter.Baxter&Eyles(1997),however,
claimthatthepositionalityoftheresearcherisastrengthofqualitativeresearch,asitallowsfor
reflexivity.
3.4SamplingMethod
Formysamplingmethod,Iusedathree-partprocess:
(i) Geographical
AlongsideCICGroup,Iidentifiedareasthathavepreviouslybeenaffectedbyfloods.Threeof
theseareas,contributingtothirteenparticipants,wereintheSouthernandEasternpartsofthe
city:SouthC,IradiamaandKitengelo.IalsointerviewedfourmembersoftheNakomattUkay
ShoppingCentrecommunityintheNorthernpartofthecity.Thisareawassignificantlyaffected
byfloodinginApril2016(seeFigure5),becauseitisbuiltincloseproximitytoalargeriver.
Figure 5. showing vulnerability of Eastern lowlands in Nairobi for flooding (Taylor, 2016)
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(ii) Demographic
Forthenecessityofnarrowingdowntheprospectiveparticipants,Iidentifiedlow-middleincome
populationsinurbansettlementsasthemostappropriatesample.Thisgavemeamoreaccurate
samplingmethod for selecting interviewparticipantsandcreatedamoreclearandcoherent
research objective. By looking at low-middle income, this minimizes risk and decreases the
numberofpopulationneedingaidafteradisaster.Low-middleincomepeopletendtoliveon
the precipice of extreme poverty and their livelihoods are greatly exposed by climate risk.
Therefore,smallbusinessownersandemployeeswereinterviewedtogainaninsightintotheir
perceptionsoffloodriskandtheirtraditionalcopingstrategiesintheeventofnaturalhazards.
(iii) Accessibility
Whilstaplethoraofcommunity-basedorganisationscouldbeconsideredtohelpconductmy
interviews, CIC Group were immediately interested by the potential use of urban index
insurance.Inadditiontotheirworkwithruralindexinsuranceforsmallholderfarmers,theyalso
provide community-based health and life insurance acrossNairobi. Further to this, they are
involvedincommunityengagementprojectstoeducate,empowerandenablecommunitiesto
improveDRManddevelopment.Bymobilizingexistingcommunitynetworks fromCICGroup
engagementstrategies,Icouldspeaktosmallbusinessownersandworkerstobetterunderstand
theirneedsandconcernsaroundfloodrisk.
Theintervieweesweresplitintotwosamplinggroups:Participantsandkeyinformants:
(a) Participants
Participantsmakeup thebulkof the interviewsandpredominantlyconsistof smallbusiness
ownersandworkersfromfourflood-pronecommunitiesinNairobi.Thequestionsusedaimed
to interpretprioritizationsofriskandbarrierstoaccessingfinancialrisktransfermechanisms
such as affordability, accessibility and social mobility. Moreover, interpretations of how
residentsofeachcommunity interactwithenvironmentalriskssuchasfloodinganddrought.
Thequestionsalsoexploredhowsocialcapital inslumareas influencesthe fosteringof trust
betweengroupsofpeopleandinstitutions.Participationishighwheresocialcapitalandtrustis
high(Mladovsky&Mossialos,2008;Woolcock,1998,2001;Woolcock&Narayan,2006;Baker,
2012;Kassahun,2015),which increases theeffectivenessand longevityof community-based
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insurance.Theanalytical frameworkaroundwhichsocialcapitalandtrustwillbeexplored is
derivedfromtheoutcomeoftheseinterviews.
(b) Keyinformants
KeyinformantsweremadeupofthepotentialstakeholdersofanIBMIschemesuchasinsurers
(CIC Group), microinsurance consultancies (AB Consultants) and NGOs (SDI, KDI andWorld
Vision). Iapplieda‘snowball’samplingmethodusinginterpersonalrelationsandconnections
fromUrbanARK, ICMIF,andCICGroup tobuildabroaderanddiverse sampleof informants
(Browne,2005).Thequestionsusedforkey informantscenteredaroundthepotential foran
IBMIproductinUrbanNairobi.Byusingtheinformant’sexpertiseinindividualareas,Icouldgain
aninsightintothechallengesandlimitationsforindexinsurance.
3.5SecondaryData
Toanswertheoreticalquestionsusingempiricalqualitativedata, Imustusetheoryto inform
datacollectionandanalysis(Milesetal,2014).Therefore,secondarydataisanecessarytoolto
buildaconceptualframeworkforanalysis.Theconceptofindex-basedorparametricinsurance
isarelativelynewalternativerisktransfermechanism.Therefore,muchofthedatausedwillbe
intrinsicallygreydataratherthanpeer-reviewed.Onekeyaimforthisdissertationistobuilda
comparative conceptual framework around which the provision of mutual index-based
insuranceschemesindevelopingcountrieswillbeexploredinrelationtoalternativerisktransfer
strategies.Toconstructthisframework,amultitudeofgreydatawillbeanalysedfromreadily
availablejournals,webpagesandpublicationsfromorganisationssuchasSwissRe,MunichRe,
ICMIF,MicroinsuranceNetwork,WorldBank,Oxfamandothernon-peer-reviewed journals. I
willreinterpretandcombinesecondarydataandbreakdownconceptstocriticallyanalyseeach
processinvolvedintheprovisionofindexinsurance.Therefore,aconceptualframeworkwillbe
evident throughout my hypothesis. There is no directly relevant framework to present the
resultsofthisthesis,soIwillcombinethequalitativedatacollectedthroughmysemi-structured
interviewswith themultitude of secondary data obtained during the research phase of this
paper.Here,IcanformananalyticalframeworkaroundwhichIwillbeabletoformmythesis.
Radermacher&Roth’s(2014)theorywasappliedasatemplatetomeasureabsoluteandtotal
impactofmicroinsuranceschemes.Measuringtheimpactofonemicroinsuranceschemeina
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developing countrydoesnotnecessarily represent the absolute impactofmicroinsurance in
developingcountries.However, itcangiveabroader indicationofhowitcanbeusedasrisk
protection for thepoor (Radermacher&Roth, 2014). Therefore, Iwill be able to assess the
relevantimpactthroughcomparativeinformationsuchasestablishedcasestudies.Here,Iwill
use the success of established case studies such as Oxfam’sMeso-Level Flood Insurance in
BangladeshandUpliftMutual’scommunity-basedhealthinsuranceinIndiatobuildananalysis
forcomparison.Skeesetal(2006)feasibilitystudywasalsoappliedtomeasurethemulti-layered
natureofindexinsuranceschemesanddeterminewhatcharacteristicsareneededbeforeapilot
project is launched. Most feasibility studies employ the static von-Neumann-Morgenstern
expectedutility framework (Gollier,2003),butexploring thedemand for index insurance for
urbanlivelihoodsisverydifferenttotheneedsofrurallivelihoods(Miranda&Farrin,2012)and
“a thorough feasibility study should determine if index insurance would be appropriate,
beneficial and economical” (Skees et al, 2006: pp.39). Thereafter, I will fill the gap in the
literaturebetweenthenecessityforsocialprotectionfromfloodriskandthebenefitsofIBMI
forurbanlivelihoods.
3.6Challenges
Aswithmost studies, therewere challenges that emergedwhilst conducting field research.
However,itisimportanttonotethattheseobstaclesdidnotcompromisetheoverallaimsofthe
project. First, when approaching people informally for interviews, women were much less
inclinedtoparticipatethanmen,whichsymbolizestheculturalissuesembeddedwithinKenyan
society(WorldBank,2010;DevelopmentInitiatives,2017).Inaddition,smallbusinessowners
andemployeeswerenotwillingtogivetoomuchtimetotalk,whichmeantthattheinterviews
wereslightlyshorterthanthedesired30minutesIwasaimingfor.Second,morethanhalfofthe
interviewswereconductedinSwahiliandthereforeatranslatorwasneeded.Thetranslatorwas
notalwaysabletotranslateeverythingword-for-word,aswebothallowedtherespondenttime
toelaborateandexpresstheirviews.Thismeantthatwhentranscribingtheinterviews,Iwas
only able to provide a summary of answers rather than direct word-for-word translations.
Therefore,thelanguagebarrierandtheparticipants’willingnesstoelaborateindepthmadeit
morechallengingtogaugeperceptionsandunderstandingaroundtheirexperiencesofflooding.
Finally, communicating micro-level insurance was very difficult due to preconceptions
surroundinginsurance.Currentlythereareveryfewlow-premiummicroinsuranceproductsin
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Kenya,asthereislittleapplicationfrominsurersinthisarea.Subsequently,perceptionsofrisk
and trust played a larger role when analysing the primary data than perceptions of
microinsurance.
4.ResultsandDiscussion
4.1Introduction
ThepurposeofthisstudywastoexplorethedemandforandfeasibilityofIBMIinNairobifor
floodrisk,whilstalsoconsideringthepotentiallimitationsfromacommunityperspective.The
firstthreechaptersofthisdissertationconsideredthestatementoftheproblemwithareview
ofthe literatureandanoverviewofthemethodologicaldesign.Thischapterwillpresentthe
findings fromthequalitativedatacollectedandprovideananalysisanddiscussionusing the
analyticalframeworkconstructedforthisstudy.Afterinterviewingatotalof17smallbusiness
ownersandworkersacrossfourdifferentflood-proneregionsinNairobi,itbecameextremely
clearthatmanyurbanlivelihoodsareaffectedbyfloods.Furthermore,thereappearstobean
increasingurgencytobetterprotect individualsandcommunities fromtheperilsof flooding.
Similarly,the12keyinformantsinterviewedrecognisedtheroleofIBMIforaddressingthese
challenges.Barrierstoaccessinginsurancehowever,includedtrust,awareness,affordabilityand
accessibility.Thereafter,thefindingsformyresearchhavebeensplitintothreethemes:Trust,
CapacityBuildingandTechnicalInput.
First,Kenyancultureisinherentlycommunal,whichmeansindividualsshareallaspectsofrisk
collectively through informal community savings. Informal socialnetworksof trustappear to
undermine formal institutional trust-building and this poses a great challenge for insurance
penetrationinKenya.However,mutualmicroinsuranceinitspurestformcantraceitsorigins
backtotheseveryinformalsocialgroups,suggestingthatanenablingenvironmentformutuality
canbeevidentinNairobi.
Second, embedded within the framework of trust, most respondents showed a lack of
knowledgeorawarenessofanyinsuranceorDRMmechanismstoprotectthemselvesbeforean
extremeweatherevent.The impactoffloodinghasasevereknock-oneffectformanyurban
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livelihoods and most communities’ capacity to cope with this is limited. Thus, disaster
preparednessispoor,particularlyacrossinformalsettlements,whereeverydaylifeissuessuch
ashealth,costoflivingandaccesstoeducationaremorepressingthannaturalhazardsmeaning
thatactionsareonlytakenpost-hocratherthanexante.Thechallengeforscalingupinsurance
coverageiscentredaroundcapacitybuilding,withmostrespondentsinterestedinthebenefits
ofinsurancebutlackingtheappropriateassistance,guidanceandinformationneededtoacton
interest.Thisresearchfoundthatstakeholderswillneedtoworktogethertodevelopcapacity,
buildtrustandeducatecommunitiestominimiseriskandimproveDRManddevelopment.
Third,poordrainageandunsafehousingwerehighlightedasthemaincomponentsoffloodrisk
inNairobi, suggesting thatmore needs to be done from a city-level perspective to improve
infrastructureandincreasefloodresilience.Thesefactorsmustbeaddressedfirstbeforeindex
insurance for flood risk can be explored further. Additionally, through insight from key
informants,thisresearchgainedanunderstandingofthetechnicalinputrequiredforpotential
stakeholderstoconsiderparticipatinginpilotschemessuchasfinancialassistance,technology,
expertiseandevidence-basedresearch.Furthermore,highlightingthepotentialforinnovative
technology to transform the distribution and design of microinsurance will be central to
mitigatingissuesoftrustandenablingeconomicempowerment.
4.2Trust
4.2.1CommunalCultureandPractices
Kenyan’sarefundamentallycommunalinnature.Thiscanpredominantlybeattributedtotheir
emphasis around cultureand religion,whichunderpins theirbeliefs andattitudes towardsa
cooperativeandcommunal society. Inboth theirworking livesandathome,people tend to
share risks collectively rather than individually and have been applying these communal
practicesformanyyears(Kuria,2011;KAIG,2016;WorldBank,2010).Additionally,thereisan
emphasisonfamilysupportinKenya,whichmeansfamiliesareveryclose-knit.Itiscommonfor
eldersiblingstopayforeducationandhealthbillsfortheyoungestsiblingsinthefamily,whilst
alsocaringforhis/herindividualfamily.Thus,sharingwealthtoimprovethelifeoflovedones
doesnotbecomeaburden,it ismoreofaprivilegeandthisstewardshipextendstopeople’s
socialnetworkshereafter.
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Whilstmosturbanpopulations,particularlyacrossthedevelopedworld,tendtocomeunder
scrutinyforfavouringindividualisticlifestylesandattitudes(Hamamura,2012),thisstudyfound
that low-income populations in Nairobiwere innately social and shared the burdens of risk
betweenthemselves.76%oftherespondentstookpartinsomeformofinformalrisksharing
acrosstheirsocialnetwork.Socialcapital,henceforth,playsanimportantrolewithinvulnerable
communitiesinNairobi,whichsupportstheinitialempiricalevidencestatedinpreviouschapters
ofthispaper.Researchsuggeststhatcommunitiesaremoreresilientwheresocialnetworksare
stronger(Baker,2012)andthisstudyreinforcesthatnotion.Individualswithstrongsocialties
whosharedriskcollectivelytendedtodisplaybetteradaptivecapacitytodisastersthanthose
whomanagedrisksindividually.
Membershipofsocialgroups,commonlyknownas‘Chama’s’(Kiswahilifor‘group’)inKenya,for
savingsleadstoacommunalownershipofrisk,wherememberspoolrisktobetterpreparefor
andtacklethechallengesthatlifethrowsatthem.TheseChama’sareinformalcooperativesset
upbetweenlargefamiliesandgroupsoffriendsorbypeoplewithsimilarinterestsorlivelihoods.
CorrespondingwithWoolcockandNarayan’s(2006)socialcapitalframework,communityties
arehighwherepeoplearemembersofmicro-savingsprograms.Chama’sareagreatplatform
for informal trust-building, particularly amongstwomen, and currently have over 12million
membersinKenya(33%ofthepopulation).Thisexemplifiesthetrustworthinesspeoplehave
acrosstheirsocialnetworks(StartUpAcademy,2014).TheintroductionofMPESA(mobilemoney
transferandbanking)inKenyahasfurtherincreasedtheavailabilityandinclusivityofChama’s,
whichissymptomaticofthetransformativetechnologythatwillbeexploredinmoredetaillater
in this chapter (see section 4.4.3). Although Chama’s are predominantly used for covering
accidents,poorhealthand lossof lifewithin thegroup, there is scope toenhance flood risk
management throughexisting informal risk sharingwithgreater capacitybuildingneeded to
helpachievethis(seesection4.3).
MostChama’scollectivelysavethroughMFIsandareusedforinvestmentpurposes,butsome
alsoadoptastrategycalled‘risk’,whichissimplywhereaproportionofthemoneypaidinisset
asidetohelpcopewithallfacetsofriskthemembersfacethroughouttheyear.Thisisaperfect
exampleofinformalinsurancewhereindividualscanperceiverisksdifferently,oftenleadingto
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participationinriskierventureswiththeirbusinessesknowingthattheyhaveprotectionfrom
financial risk. This change of mind-set in its purest form is transformative and facilitates
economic empowerment across vulnerable communities in Kenya. Symbioticwith the SDGs,
these community risk sharing and investment platforms are helping to bridge the gap from
povertytoprosperityneededtoimproveurbanlivelihoodsinNairobi.
4.2.2InformalandFormalTrust-Building
Insurancepenetrationandmicroinsurancecoverage inKenya isvery low,at2.9%and5.98%
respectively(SwissRe,2017).Apracticeperceivedbymanyassomethingexclusivelyconfined
tothewealthiestelite,itisunsurprisingthatinsurancecoverageisnotwidespreadthroughout
Kenya.Insurancecompanies,therefore,onlyrepresentasmallproportionofthepopulationand
people at the bottom of the socio-economic pyramid (BOP) are overlooked. Perceptions of
insurancecompaniesandinsuranceingeneralhascausedanincreaseintheuptakeofinformal
risktransfer.ThisstudyfoundthatdemandformicroinsuranceinKenyaisintrinsicallylinkedto
poorformaltrust-buildingwithinstitutions.Consequently,manylow-incomecommunitiesturn
to the informal market, where social capital and trust is stronger. 65% of the respondents
presented a lack of trust towards insurance companies and formal institutions alike. Issues
includingdishonesty, lackoftransparency,affordabilityandaccessibilitywerestressedaskey
factorsaffecting theprocessof formal trust-building.Claims settlingwasamongst themajor
reasons why mistrust was present in the process of insurance, highlighting the potential
transformativeroleofindexinsuranceforreversingthesenegativeperceptions.Trust,therefore,
is highlighted as the biggest challenge facing the scale-up of insurance coverage in the
developingworldandaddressingthisissueiscrucialtotheobjectivesoftheG7Insuresilience
initiativeandsimilarinternationalprojectsaimingtoreducetheprotectiongap.
“Unlikealoan,insuranceisapromiseforapaymentlaterforapremiumpaidnowandas
such,trustisinherentlyatthecoreoftheprocess”(Greatrexetal2015:p.24)
Trust isthepredominantfactorcausingtheexponentialriseof informalrisksharing,asmost
respondentshaddifficultiestrustinginstitutionssuchasbanksandinsurancecompanies.These
trustissuesarelargelycausedbypastexperiencesorpreconceptions,butalsoshapedbytheir
peerswithidentityandstatusplayingadominantroleinchangingbehavioursandattitudesin
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thecommunity.Trustwithinthecommunity(informaltrust)isconsequentlynotablystronger
thaninstitutionaltrust(formaltrust)andthiscanserveasanexplanationastowhyinsurance
take-upissolowinKenya.MorsinkandGeurts(2011)alsohighlightcomparablethemesintheir
work on microinsurance and trust-building, where demand for microinsurance is primarily
embedded within the framework of formal trust-building. Thus, mobilising the success of
informaltrust-buildingshouldbeanareaoffocusformicroinsuranceproviders(Bauchet,2013).
Ontheotherhand,itcouldbesaidthattheinformaleconomicmarketinKenyaisoutpacingthe
formalandproponentsofinformalitymightseektokeepthetwoseparated.However,thescope
for scaling up informal risk transfer is limited due to lack of resources, financial assets and
regulatory requirements.Many informal cooperatives transition over time into large formal
cooperatives,withsomekeyinformantspointingtosuccessesincentralKenyaforthesewide-
scaletransitions.
Recognisingthis,theformalinsurancemarketneedstopursuelinesofcooperationwithexisting
socialgroupstobetterunderstandtheirneedsandprovideproductsfocussedentirelyaround
thesegroups.Thecultureofcommunallivingmeanssocialnetworksareaperfectexampleof
howpeoplesharerisksfinanciallyandmobilisingthesegroupstoparticipateinformallinesof
risk protection is a key area to explore. CIC Group, for instance, are currently distributing
microinsurance through aggregators such as affinity groups and self-help groups. Creating
demandformicroinsuranceremainsachallengethoughandpartneringwithorganisationssuch
asNGOswhohavealreadybuilttrustinthecommunityshouldbeafocalpointthroughoutthe
consultationprocessofdesigningIBMI(seesection4.4.2).
4.2.3EnablingEnvironmentforMutualMicroinsurance
Mutualinsurancecantraceitsrootsbacktofriendlysocietiesandcooperativesinthelate17th
Century,whereriskpoolingformedbetweenworkersandlikemindedindividualsintheabsence
of mainstream insurance solutions (Swiss Re, 2016: p.2). Similarly, the current 21st Century
informal savings practices in Kenya borne out of impractical, inaccessible and unaffordable
insurancesolutions,provideanindicationofmutualityatitsroots.Failuresinthemainstream
market contribute to a rise in the uptake ofmutuality, with the recent economic recession
revealing thereflexivityofmutual insurance (SwissRe,2016).Gonzalez-Pelaez&vonDahlen
(2015) refer to three sectors in their review on insurance regulation for sustainable
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development:Public,PrivateandMutual.Separatingmutualinsurancefromtheprivatesector
is indicativeofthedetachmentmutualityinstilsatitscorethroughitsmember-ownedrather
than shareholder driven agenda. Reflecting this bottom-up approach to insurance, recent
attentionhasbeendrawntothemutualsectorforadvancingtheSDGsthroughmoreinclusive
insurancesolutions(ICMIF,2016).Withtrustrootedatthecoreofinsurance,thisstudyfound
that mutual microinsurance is well placed to meet the needs of the most vulnerable
communitiesacrossNairobi.
AsseeninIndiawiththecasestudyofUpliftMutuals(Section2.5),informalsavingsgroupsand
self-helpgroupsprovideanenablingenvironmentformutualmicroinsurancetooperate.
Theoriginsofmutualityarefirmlyembedded in informalcommunalpracticesandmobilising
theseexisting communitynetworksof trust areneeded to facilitate theprovisionofmutual
microinsurance.Drawingonempiricalevidencefromexistingdevelopingworldcasestudiesand
insights from respondents in Nairobi, this study unearthed clear comparisons between the
successofmutualmicroinsuranceandhighlevelsofsocialcapitalwithincommunitynetworks.
Inaddition,communities’willingnesstosaveandputasidehouseholdincometohelpeachother
isindicativeoftheircooperativenatureandformsthebasisformutualentities.However,access
tosocialnetworksmaydeterminetheinclusivityandaccessibilityofmicroinsurance,whichcould
haveadetrimentaleffecttoitsoveralleffectivenessandtotalimpact.
Mutual microinsurance can enable the transformation from a profit-driven to needs-based
agenda,whichisnecessarytobridgethegapbetweeninformalandformaltrust-building.Thus,
increasing protection from the accelerating rate of natural hazards in the developingworld.
Tailoring community-based products to address the impacts of flooding will provide both
protection from climate-related risks and facilitate economic empowerment through
community cohesion. Subsequently, thiswill noticeably contribute to achieving the goals of
sustainable development, DRR and CCA, whilst also providing another indicator of the
fundamental interconnectivity between the three fields. Improving financial inclusion and
closing theprotectiongapare targets transcendingall threemajor internationalagreements
from2015.IBMI,throughthelensofamutualmodel,canbecomeacentraltoolinattempting
toachievethesecollectivegoals.
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4.3CapacityBuilding
4.3.1CommunityPerceptionandAwareness
Risksforurbanlivelihoodsareomnipresent inNairobi.Challengesdirectlyrelatedtoflooding
suchaswatercontamination,diseaseandlossof incomeareareminderofthemulti-faceted
nature of flood risk and the broad spectrum of issues that need to be addressed to better
enhance flood risk management. Coping with the impact of natural hazards is particularly
challengingforsmallbusinessownersandworkersacrossNairobi.Thisstudyfoundthatdrastic
livelihoodcutswereapparentinthefaceofthesechallenges,withknockoneffectssuchasfood
rationing, withdrawal from education and poor access to healthcare placing families under
severefinancialandpsychologicalstress.Culturalandsocialdynamicsincommunitiessuchas
religion,genderandpeerpressureshapethewayindividualsperceiveandtransferriskacross
thecommunity.Concurrently,behavioursandattitudesdetermine theadaptivecapacityand
preparedness of communities to cope with the catastrophic impacts of flooding. Although
insurance is not a panacea for DRM or reducing poverty, it is a transformative tool if used
effectivelyanditsbenefitsshouldbecommunicatedtoimproveDRMforfloodrisk(Abu-Bakar
etal,2017).
Onecommonthemeacrossallkeyinformantsandrespondentswasthelackofawarenessor
knowledgeofinsuranceforprotectingindividualsagainstnaturalhazards.Whenqueriedover
theirunderstandingofinsurance,88%oftherespondentsdisplayedbasicknowledgeonhealth
andmotorproductsbutnotnaturalhazards.Thisportraystheglaringeducationalchallenges
facing thepotential uptakeof IBMI inNairobi, butdoesnotdemonstrate a lackof demand.
Proponentsofindexinsurance(Whalley,2016;Hellmeuthetal,2009;Barrettetal,2007;Warner
etal,2009;Lashley&Warner,2015;UNFCCC,n.d.)indicateitstransformativenatureforrural
livelihoods and this study discovered its equivalent potential for urban livelihoods. Similar
indicationsofdemand for IBMIwereclearlyapparent fromunderstandingpeoples’concerns
aroundfloodrisk.Indexinsurancecanostensiblybetailoredtomeettheriskmanagementneeds
ofurbanlivelihoods.Therefore,moreexplorationintoitsapplicationshouldbeconsideredby
insurancecompaniesandDRMagenciesalike.
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Whilsttherearefewreadilyavailableproductstailoredtourbanlivelihoodsforprotectionfrom
climate-risk, there is also a lack of education across communities on risk perception and
preparednesstohelpminimizeclimate-risks.TheinsuranceindustryaswellasNGOs,regulators
and government institutions have a duty to place specific focus on education building for
vulnerable communities. Increasing understanding on insurance and future IBMI products
beforethedistributionprocesswillhelpdecreasebasisriskandremoveelementsofmistrust
from the claims process. Capacity for scaling upmicroinsurance coverage in the developing
worldisinherentlylimitedbyawareness.Creatingdemandandbuildingtrustrequiresgreater
focusoneducationbuilding.Thiscanbedonethroughinspiringyoung,passionate leadersto
address these challenges of awareness from within the community and eventually take
ownershipof IBMI in the long-term.Wheremanydevelopingworld index insuranceprojects
havefailedislongevity(Greatrexetal,2015;Abu-Bakaretal,2017).Toenableself-sustaining
IBMIandreducerelianceondonors,capacitydevelopmentmustbeentrenchedwithintheinitial
strategyanddesignprocessofpilotprojects.Thisrequirescooperationbetweenpublic,private
and mutual stakeholders to ensure an integrated and effective approach for designing,
deliveringandmaintainingIBMI.
4.3.2AffordabilityandAccessibility
Affordabilityofmicroinsurance isdirectly linkedtoawareness.Many insurancecompanies in
Kenya don’t explore the practice of microinsurance because the costs associated with
distributionandmarketingaretoohighandnotcost-effective.RepresentativesfromCICGroup
statedtheseinitialcostsasthebiggestchallengeforspreadingmicroinsurancecoverageacross
the country. Micro-products are informally referred to as CSR within large insurance
organisations,withtheirbenefitsnotcongruentwiththeirprofit-makingaims.Premiumsfrom
microinsurance generate small income and it often takes several years to strike a balance
betweenprofitandloss.Whilstanapproachdisparatefromthecurrentprofit-drivenagendais
consideredthroughoutthisstudy,it isdifficulttoseehowcompaniesindevelopingcountries
canprioritisethis.Sacrificingthecurrentapproachrequirestechnicalandfinancialassistance
from equitable international organisations who are passionate and driven by the desire to
activelytransformpeoples’livesthroughevidence-basedsolutions(Reeves,2016;Greatrexet
al, 2015). The challenge ofmicroinsurance is not simply confined to its high initial costs of
production,butinsteadthelackofvisionfrominsurancecompaniesanddevelopmentagencies
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toplaceaprimaryfocusoninnovatingmicro-productstomakethemmoreaccessibleandmore
affordable. Only through cross-organisational cooperation and in-depth qualitative and
quantitative field research can strategies begin to develop for providing themost effective
products.
Macro-level projects tend to overlook this capacity building phase in favour of maximising
coverageovertheshort-term(Reeves,2016;Collieretal,2009).Consequently,thebenefitsand
caveatsofpossessinginsurancearenotcommunicated,meaningthatcommunities’behaviours
andattitudestowardsriskcontinuetoheightentheirvulnerabilitytodisasters.Whilethismight
betherightapproachinsomedevelopingcountries,itdoesincreaserelianceonaidandmight
divertattentionawayfrommorerelevantDRMstrategies.Therefore,macro-levelprojectshave
their role to play, but they fail somewhat in their attempts to work alongside sustainable
developmentinfavourofprovidingquickfixestoproblemsthataredeeplyentrenchedwithin
the socio-economic and cultural dynamics of communities.Micro-level insight is required to
better understand these complexities and learning from existing community networks is a
pertinentapproachherein.
Ultimately, this study found that capacity and education building before the distribution of
microinsuranceisinherentlyassociatedwithsuccessofscalingupcoverageandprovidinglong-
termsolutionstodisasterrisk.Mostrespondentsfeltoutoftouchwithcurrentmicro-products
onthemarket,withmanyfavouringinformalsolutionstoriskratherthanformal.Affordability
remainsakeychallengeforinsurancecompanies,withABconsultantsandCICGroupinformants
labelling regulatory requirements as a major stumbling block to pricing affordable micro-
products.ABConsultants suggest that thereappears tobea glaringdisparitybetweenwhat
microinsuranceshouldbepricedatandwhattheactuariesarepricingitat.Consequently,many
respondents felt insurance was neither accessible nor practical for a large majority of the
population.Organisational perception of risk differs somewhat from cultural risk perception
across communities and there needs to be drastic changes in mind-set from the insurance
industrytofacilitatethiswideningperceptiongap.Microinsuranceisstillanemergingmarket
and needs to be viewed pragmatically henceforth. The commercialisation of risk from a
microinsurance perspective needs to radically transform to meet the needs of the most
vulnerablecommunities.Therefore,regulatorsmustplayamajorroleinprovidinganenabling
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environment fornew innovativetechnologies (Section4.4.3)andapproachestoenhancethe
distributionofmicroinsuranceandreducemarketingcosts.
4.3.3BuildinganInsurablePopulation
ToreachtheG7InsuResiliencetargetof400millionpeopleinsuredfromclimate-relatedrisksby
2020,itisbecomingrelativelyclearthatthereneedstobegreaterawarenessofindexinsurance
from a community-level perspective. The key challenge for scaling up insurance coverage is
exactlythis.Providingcoverageforthemassesinthefastestwaypossibleisrelativelyeasywith
advances in technological distribution systems (Section 4.4.3) and increasing donor interest.
However, providing sustainable coverage with the capability of empowering communities
economicallyandsociallyshouldbethelong-termaim.Thiscannotbedoneinamatterofweeks
or months. This must be a process which first and foremost considers the needs of the
community to enable the most appropriate product design, before propelling imprudent
insuranceschemesontoindividualswithlittleornoknowledgeofthedeepersocialandcultural
complexities embedded within societies. It is vital that we learn from existing community
resilienceeffortsandbuildonwhattheyarealreadydoingtobetterdesignanddistributeindex
insuranceindevelopingcountriesandensurethattheneedsofthepeopleaffectedaremet.
Keyresearchforfacilitating IBMIneedstobestudiedfurthersuchaswhy insurance isfailing
vulnerable communities, what characteristics need to be in place to make insurance work
(infrastructure,education,health)andshouldtherebeadditionalproductstoworkalongside
climaterisksuchashealthandlifeinsurance.Long-termprojectstodevelopinsurancefriendly
populationswillsignificantlyhelpreduceriskaccumulation.Additionally,communitiesshould
becentraltothegovernanceanddecision-makingprocesstobridgethegapofinstitutionaltrust
thatislimitingmicroinsurance.However,thecommunity-basedmodeloftenrequiresfinancial
assistance and this study calls for a vertically integrated approach from bottom-up
understanding to top-down finance, with a primary focus on community economic
empowerment. Technical understanding (Section 4.4.2) is vital and this can only be done
through cooperative platforms of knowledge,which form the basis of cooperation from lay
knowledgetotechnicalexpertise(Rudiak-Gould,2013;Munene,2015).
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ProjectslikeICMIF’sthree-partimpact-based5-5-5strategy(seeSection2.5)shouldbeexplored
across the microinsurance space to help empower communities and reduce the financial
dependency that sooften limits sustainabledevelopment (ICMIF,2015).Bybuildingcapacity
throughprogrammestodevelopandimprovemanagementskills,insuranceliteracyandDRM,
communities become the sales agent for insurance. This reduces the issues of cost-benefit
analysis for insurance companies and benefits communities through the development of
transformativeeconomicskillsandprovidingthemwiththemechanismbywhichpeoplecanset
up, run and own their own business for the benefit of the community. Thus, an insurable
population can be built with a view to minimizing disaster risk and enhancing disaster
preparedness.
4.4TechnicalInput
4.4.1Infrastructure
There isempirical andqualitativeevidence from this study to suggest thaturban livelihoods
wouldbenefitfromIBMIinflood-proneregionsacrossNairobi.Despitethisapparentdemand,
thereareafewcaveatstoconsiderbeforepursuingitsapplicationinapracticalsense.Floodrisk
can be minimized from a city-level perspective through improved SWM, effective drainage
systems,adherencetobuildingregulationsandsafehousing.Mostrespondentspointedtopoor
drainageastheunderlyingfactorincreasingtheriskofheavyrainfallflooding.Drainagesystems
becomeblockedduetosolidwaste,whichmeanssurfacewateraccumulatesandspreadsacross
roads. Local city council and government officials need to interact with the community to
improveSWMthroughbettereducationandinfrastructure.Failingthis,community-basedNGOs
suchasKDIcouldplayapivotalroleinmobilisingcommunitiestoreducesolidwasteandimprove
floodresilience.Therefore,anintegratedapproachtofacilitatetheprocessesofindexinsurance
is needed, with the city council and government providing the enabling environment for
communities to access resources and mitigate the impact of floods (Satterthwaite, 2011;
Munene,2015).However,evenwitheffectivedrainageandsafehousing,manykeyinformants
felttherewouldstillbesignificantfloodriskinthecomingyears,owingtotheclimateprojections
for higher intensity rainfall patterns (IPCC, 2012). Henceforth, a requirement for tailoring
financialrisktransferproductstoprotecturbanlivelihoodswillbevitalinreducingvulnerability
andincreasingresiliencetoflooding.
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4.4.2Stakeholders
CorrespondingwiththeOxfamschemeinBangladesh(Section2.3),therelevantstakeholders
neededtodesign,manageandsustainanIBMIprojectinNairobimustworkcooperativelyacross
various fields of expertise. A project lead (INGO), an insurance company (national/ regional
insurer), a local NGO (policyholder), a reinsurance company (international organization), a
funding agency (international development agency/ government), a technical partner (data
provider)andadesignpartner (consultancy)areamongst theplethoraofmulti-stakeholders
usedthroughouttheprocessoftheOxfamproject(Desai,2013;Oxfam,2013).Consideringthe
successoftheOxfamschemeforindexinsuranceandthemutualisationofriskinNairobi,there
isevidencetosuggestthatarelativelysimilartemplatecouldbeusedattheMicro-levelacross
the Kenyan capital city. Despite the clear distinctions between flood risk in Bangladesh and
Nairobi,successfulcasestudiescanpresentabroader indicationofhowIBMIcanbeusedas
climate-relatedriskprotectionforvulnerablecommunities(Radermacher&Roth,2014).
Local NGOs with readily accessible social networks act as a moral compass for insurance
companies by distributing fair payments to families and businesses affected by floods.
Additionally, they provide much-needed education to help develop efforts on increasing
communityfloodresilience.Consequently,thiswillalsohelptobuildthenecessarynetworksof
formalandinformaltrustforscalingupinsurancecoverageacrossNairobiintheyearstocome.
An important aspect to consider is that both microinsurance and index insurance are still
relatively new products. Data modelling organisations with access to innovative ways of
calculatingthefrequencyandseverityofriskscanprovideamuch-neededplatformforinsurance
companies to price risks accordingly and affordably. Alongside technical expertise, financial
assistance will also be pivotal for an IBMI scheme, with representatives from CIC Group
suggestingthat90%oftheinitialcostswillneedtobesupportedthroughdonors.Inrecentlight
oftheUKgovernment’sannouncementonfundingdisasterinsuranceinAfricatoreducereliance
ondisasteraid(AsthanaandWintour,2017),thereappearstobeaplethoraofrelevantdonor
interest across international development agencies to pursue IBMI projects in sub-Saharan
Africa.
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4.4.3TransformativeTechnology
Aspreviouslymentionedthroughoutthischapter,advancementsintechnologywillbecentral
tomaintaining the success of IBMI in developing countries. Case studies from TIA in Kenya
(Section 2.3) have proven the dexterity of satellite imaging for improving the speed and
effectivenessofclaimssettlingforsmallholderfarmers.Theindextriggeritselfistransformative
for the insurance industryandrepresentsa technologicalsolutionforbuildingtrustbetween
communitiesandinstitutions.Moreover,indexinsuranceembodiestheparadigmshiftthatwill
berequiredfromtheinsuranceindustrytokeeppacewiththerisksassociatedtoourconstantly
changingclimateandultimatelyincreaseprotectionfromclimate-relateddisastersformillions
of people in the developingworld. The quality of data available is a challenge that is being
addressedpresently. Limitedmeteorological data in sub-SaharanAfrica symbolises the ‘data
poverty’thatiscurrentlyholdingbacktheprogressofindexinsuranceindevelopingcountries
(Greatrexetal,2015;DevelopmentInitiatives,2017).Constantchangeandadaptationtobetter
increase the impact of index insurance will be a prerequisite from relevant stakeholders
responsible.
Balancing technological innovation with social research must be considered to make sure
policyholdershaveaclearunderstandingoftheircoverandtherisksassociatedwithdisasters.
Inaddition,combinedrainfallpredictionestimatesandconsultationwithindigenousnetworks
ofknowledgetounderstandandwriteriskwillbekeytooffsettingthechallengeofbasisrisk
(Bauchet,2013).Issuesofdishonesty,lackoftransparency,affordabilityandaccessibilityareall
characteristics that transformative technologies can help reverse. Lack of transparency, for
instance,isbeingtackledthroughBlockchain:atransparenttechnologicalpaymentsystemthat
hasthepotentialtocompletelytransformthemicroinsurancemarket(MicroinsuranceNetwork,
2016).M-PESA, amobilebankingand transfer system, represents aperfect exampleofhow
technologyhas beenused to transform thebanking and insurance industries in Kenya,with
insurers like CIC Group and projects like ACRE Africa currently pursuing the distribution of
microinsuranceandsmallclaimssettlingthroughM-PESA(Greatrexetal,2015).Insurersmust
recognisethenecessitytobepragmaticininsurancebytakingfinancialriskstotransformtheir
businesspracticesthroughdisruptivetechnologies(SwissRe,2016).
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5.Conclusion
Climatechangewillsignificantly increaseboththefrequencyandintensityofflooding inEast
Africaoverthecomingyears(Niangetal,2014;IPCC,2012).Recognisingthis,moreneedstobe
donetoenhancesocialandfinancialprotectionfromfloodrisk.Thisstudyfoundthatadaptive
capacity and resilience to flood risk is increased through informal risk sharing platforms.
CommunalcultureinNairobidenotestheimportanceofcollectivismforaddressingclimaterisks.
Additionally,socialcapitalplaysasignificantroletowardscreatingmoreinclusiveinformalrisk
financing.Highinformaltrustacrosspoorurbansettlementscanbe,inmostparts,attributedto
poortrustinformalinstitutions.MorsinkandGuerts(2011)considerformaltrust-buildingasthe
keychallengetoscalingupinsurancecoverageandthisstudyfoundsimilarresults.Theability
toscaleupinsurancecoveragetoreducetheprotectiongapisinnatelyembeddedwithinformal
trust-building.Developingworldindexinsuranceprojectsneedtoconsiderthiswhenpursuing
macro-levelapproaches.
While the informal market continues to flourish through the facilitation of Chama’s,
microinsurancepenetrationinKenyaremainslow.Insurersmustexploremoreopportunitiesto
pursuelinesofcooperationwiththeinformalmarkettobridgethegapbetweeninformaland
formaltrust.InformalrisksharinginNairobicreatesamantrabywhichmutualmicroinsurance
can thrive, with similar transitions from informal insurance to formal occurring across the
developingworld(ICMIF,2015;Uplift,n.d;Ana-Gonzalez&von-Dahlen,2015).Embeddedwithin
mutuality is the conceptof communityownershipandempowerment.Capacitybuildingand
educationlieattheheartofthisandstakeholdersneedtoconsidertheimportanceofreducing
futurerisksaswellassimplyreducingcurrentrisks.InsuranceisnotapanaceaforDRMorending
poverty and needs to be integrated into a broader objective, where it works alongside
sustainable development such as education, economic empowerment, gender equality and
sustainable communities.Here, IBMIhas theability to transcendDRR,CCAand theSDGsby
improving resilience to climate risk, increasing financial inclusion and enhancing disaster
preparedness.
There is existing empirical and qualitative evidence from this study to suggest that index
insurancecanbeusedtoenhanceDRMforfloodriskinNairobi.Barrierstoaccessinginsurance
however, included awareness, affordability and accessibility. Microinsurance and index
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insurancearerelativelynewproducts.Insurersandregulatoryauthoritiesalikehaveadutyto
bepragmaticandlaunchmicro-productsthatdisruptthemarketthroughnewtechnologies.To
achieve this for index insurance, the issueof datapovertymustbe addressed indeveloping
countries.Moreover,strikingabalancebetweensocialresearchandtechnological innovation
willbecentraltothesuccessofIBMI.Itisvitalthatwelearnfromexistingcommunityresilience
efforts and build on what they are currently doing to better design and distribute IBMI in
developingcountriesandensuretheneedsofthemostvulnerablepeoplearemet.Engagingthe
communitytodrivechangefromthebottom-upthroughyoung,passionateleadersisneededto
economicallyempowercommunitiesandenable the transition fromadaptation to long-term
transformation.Here, stakeholderswill need towork cooperatively acrossorganisations and
communitiestodesignanddistributethemosteffectiveproducts.Aparadigmshiftwillneedto
beapparentfromtheinsuranceindustrytofacilitatethesuccessofIBMIinNairobiandacross
thedevelopingworld.Therefore,IBMIshouldpursueaneeds-basedapproach,whereprojects
arebuiltforandrunbythecommunity.Individualsfromwithinthecommunitywhohavethe
visionandpassiontoplayapivotalroleinIBMIprojectsneedtoworkcooperativelyalongside
formalinstitutionstocreateaninclusiveandaffordableproduct.Thus,integratingplatformsof
knowledgefrombottom-upcommunityactiontotop-downtechnicalexpertisewillbeneeded
toenablethemostapplicableIBMIprojectforthecommunity.
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ThecontentsofthisWorkingPaperreflecttheviewsoftheauthoronlyandnotthoseoftheUKDepartmentforInternationalDevelopmentortheEconomicandSocialResearchCouncil.ThispaperispartoftheUrbanARKStudentWorkingPaperseriesandisbasedontheauthor’sMastersDissertation,completedintheGeographyDepartmentatKing’sCollegeLondon.