Nepal Needs an Insurance System to Tackle the Fallout of Flood Disaster
Dr J Ghosh
Nepal has a long history of floods and landslides associated with the south-west monsoon. In 2006 and 2007, the country experienced severe flooding in the southern Terai districts while many hill districts suffered devastating landslides. In 2008, on August 18, the Koshi River in the Eastern Terai broke through the eastern embankment roughly 10 Km north of the East-West Highway. The loss that followed can be rightly blamed upon the poor water resource management techniques followed as well as the poor maintenance of the embankment and overall lack of river basin management.
A total of nine Village Development Committee areas in Sunsari district have been affected (three of them very seriously) by the floods from Koshi. The East-West Highway, which is the country’s main transport corridor, remains impassable as its two-mile section has been swept away at three different points that will take sometime to reconstruct. According to the latest estimation of the Ministry of Home Affairs (MOHA) 107,000 people have been affected and more than 6,800 livestock worth Rs. 13.2 million have been lost. The flood wiped out standing crops - paddy, banana, sugarcane, jute and fisheries from more than 5300 hectares of land causing a loss of more than Rs. 300 million in the district. A total of 35,000 people have been reportedly displaced in Sunsari and 19,000 in the neighbouring Saptari district across the Koshi zone. Among the displaced, 50 percent are children.
However, such vulnerability to a crisis is not an occasional cry in Nepal. It’s a perennial problem for most Nepalis.
Flood Disasters in Nepal (1951-2000)
Period
Count of Flood No.
Death
Injured Affected
Homeless
Affected
Total
Sum of Damage US$ 000s
1951-1960
1
60
NA
NA
NA
NA
NA
1961-1970
2
626
NA
NA
21000
21000
300
1971-1980
1
130
48
700
27000
27748
513
1981-1990
13
1711
112
2000
626000
628112
737500
1991-2000
8
2646
570
66650
789050
856270
252300
Source : UN Office of the Coordination of Humanitarian Affairs (UNOCHA) & International Federation of Red Cross and Red Crescent Societies (IFRC)
Flood : Deadly Waters
Floods are the most frequently recorded destructive events, accounting for about 30 percent of the world’s disasters each year. And the frequency of floods is increasing rapidly than any other type of disaster. Much of this rise in flooding incidences can be attributed to uncontrolled urbanization, unplanned human settlements, global warming and deforestation.
It is estimated by the World Bank (WB) that annual costs of damage due to disasters vary from 2 percent to 15 percent of Gross Domestic Product of the affected countries. However, most governments have hitherto been responding to disasters primarily with a relief-centric and reactive approach. As Munich Re has observed in a study in 2005, only 1 percent to 3 percent of households and businesses in the low and middle income countries respectively are covered by insurance against catastrophe risks as against 30 percent in high income countries.
Major 5 Flood Disasters in Nepal (according to amount of damage in US $ '000) 1951-2000
There are three complementary ways of managing risks. (1) The flood risks can be reduced if adequate investment is made in the areas of water management. Moreover, in order to meet poverty reduction objectives, it is necessary that potential risks are determined in the flood-prone areas and risk management approaches are taken into consideration while designing poverty alleviation plans. (2) Normally, the rural people manage such disasters through their savings and borrowings. But in a situation like in Sunsari, the savings in livestock and crops are lost and the whole community has sustained losses. The standard support mechanism, like that of friends, neighbours and local relief societies are not available since everybody is the victim of the disaster. Therefore, the government has an important role in providing regulatory and institutional framework for broad and long-term financial system. (3) The formal and informal insurance allows for pooling of risks. This a classic area for market failure: insurance companies dislike bad risks or charge unaffordable prices destroying the gains from risk-pooling. So, the government should play a central role in creating Disaster Insurance Pool having an effective response strategy that depends on building government capacities before a disaster hits a certain region. Economic Loss Due to Major Devastating Floods in Nepal
Insurance allows transferring of financial risk from an individual to a pooled group. Some countries have introduced catastrophic bonds, catastrophic pools, weather derivatives and mutual micro insurance schemes to assist the disaster-prone communities. The Turkish Catastrophic Insurance Pool, for instance, has innovative provisions like mandatory coverage, lower tax for home owners who get insurance and possible mitigation incentives in case of coming across disasters.
The flood insurance scheme for agricultural sector has been introduced in Vietnam. Similar insurance provides cushion to fishery yields in Peru from El Nino. In India, the Crop Insurance Scheme and the recently introduced Varsha Beema are some attempts made to address the impact of harsh weather on the sustainability of agriculture, dairy farming and fisheries. Micro insurance schemes offered by Proshika in Bangladesh, Swayamkrushi in India, Network Leasing Corporation in Pakistan and National Smallholder Farmers Association in Malawi have been observed as innovative exercises in offering sustainable and resilient approaches for the disaster-prone communities.
The paradigm shift from a relief-centric disaster management strategy to a more proactive strategy of strengthening preparedness and mitigation has resulted in a growing interest in the potential of risk transfer instruments like insurance to provide effective disaster risks management solutions.
Be Partner of Challenges
As the water level recedes and the foul smell of corpses makes the air heavy, people remember their lost family members or friends idly sitting on the flood-devastated homelands. The support flow gradually stops. We leave them at the mercy of flood.
In view of the recurrent flood disasters in the country, there is a need to develop long-term strategies to reduce the impact of shocks and to implement policies that foster broad financial and insurance system to help people tackle flood-sorrows and sufferings and save the victims from debt trap.
Nepal has a long history of floods and landslides associated with the south-west monsoon. In 2006 and 2007, the country experienced severe flooding in the southern Terai districts while many hill districts suffered devastating landslides. In 2008, on August 18, the Koshi River in the Eastern Terai broke through the eastern embankment roughly 10 Km north of the East-West Highway. The loss that followed can be rightly blamed upon the poor water resource management techniques followed as well as the poor maintenance of the embankment and overall lack of river basin management. 
There are three complementary ways of managing risks. (1) The flood risks can be reduced if adequate investment is made in the areas of water management. Moreover, in order to meet poverty reduction objectives, it is necessary that potential risks are determined in the flood-prone areas and risk management approaches are taken into consideration while designing poverty alleviation plans. (2) Normally, the rural people manage such disasters through their savings and borrowings. But in a situation like in Sunsari, the savings in livestock and crops are lost and the whole community has sustained losses. The standard support mechanism, like that of friends, neighbours and local relief societies are not available since everybody is the victim of the disaster. Therefore, the government has an important role in providing regulatory and institutional framework for broad and long-term financial system. (3) The formal and informal insurance allows for pooling of risks. This a classic area for market failure: insurance companies dislike bad risks or charge unaffordable prices destroying the gains from risk-pooling. So, the government should play a central role in creating Disaster Insurance Pool having an effective response strategy that depends on building government capacities before a disaster hits a certain region. Economic Loss Due to Major Devastating Floods in Nepal