JBA, Global Parametrics and VisionFund International combine expertise to develop a flood microfinancing scheme in Myanmar
In 2015, monsoon flooding in Myanmar led to over a million people being affected (BBC, 2015). As well as the loss of life, the devastation caused thousands to be displaced as flood waters along the Irrawaddy and Ngawun rivers burst their banks. Unfortunately, such floods are commonplace in Myanmar, causing an estimated economic toll of over 1.9 billion USD each year (Prevention Web, 2014).
Activating change
With a large agrarian economy, one of the hardest hit communities by these events are low income local farmers. Annual flooding can decimate crop production and ruin livelihoods. Microfinance lenders VisionFund International, who offer loans and insurance to farmers and low-income families, discovered that these loans are often spent on flood recovery rather than improvements to agriculture practices for which they had been intended. In order to provide greater resilience to the farmers when such events occur, VisionFund International sought a way to enable a more effective and swift recovery by offering recovery loans backed by capital and credit when a major flood occurs. They contacted Global Parametrics to ask them for help in meeting the challenge.
Global Parametrics, who specialise in natural disaster risk modelling for emerging markets, partnered with JBA Risk Management to develop a parametric solution for Myanmar flood risk that would be suitable for supporting the farmers. Funding for this solution was partly provided by The UK’s Department for International Development.
“Global Parametrics is a unique solution provider in the development of disaster risk management and is able to quickly customise and implement recovery systems that are both effective and responsive,” explains Malcolm Haylock, Head of Risk Modelling, Global Parametrics. “Historical, forecast and real-time flood data was critical to the success of this programme. It had to be consistent and reliable - which was why we chose to work with the global flood experts, JBA.”
Figure 1: From July to September 2015, during the south-west monsoon season, Myanmar experienced intense flooding and associated landslides, resulting in the displacement of over 1.6 million people with damages of over USD $1.5 billion, which accounted for over 3% of Myanmar's GDP at the time (GFDRR, 2019).
Using JBA flood Science
In order to establish the parametric product, two key pieces of information were required:
1. Flood data to quantify the risk of flooding.
To quantify the risk of flooding across Myanmar and establish the suitable trigger threshold for parametric insurance products, JBA combined its Global Flood Event Set and Global Flood Hazard Maps and produced raster footprints for every event in the event set. This dataset encompassed 250,364 plausible flood events allowing a long term view of risk to be established.
2. Flood data to monitor the live situation in the event of flooding.
JBA provided a service based on Flood Foresight to monitor and forecast flood conditions with the potential to trigger claims. The system calculates probabilistic daily forecast flood extent and depth maps at 30m resolution with 0-9 days lead time. Flood Foresight is underpinned by JBA's Global Flood Maps, ensuring consistency in approach between contract structuring, pricing and settlement. The system allows Global Parametrics to determine when the parametric trigger points have been met and when the payments to farmers should be made.
Global Parametrics and JBA validated the modelling outputs against the 2015 and 2019 flood events, with the system running for a trial period before becoming fully operational.
Applying Expertise
Global Parametrics have extensive experience in using analytics to develop natural disaster risk mitigation and financial resilience in emerging economies. They looked to design a parametric insurance product to meet the requirements of the VisionFund challenge and called upon JBA as global flood science experts to support their solution.
With Global Flood Maps, Global Event Sets and the world’s only probabilistic Global Flood Model, JBA was uniquely placed to offer high-resolution, globally-consistent flood data for the Myanmar project. Furthermore, JBA’s unique ability to provide a consistent flood forecasting and monitoring system in Flood Foresight was key to determine when payments should be triggered.
Parametric Insurance
This relatively new solution is particularly helpful in areas that would not normally be covered within the portfolio of traditional insurance. It involves setting an agreed parameter or trigger point in advance. In the case of flooding this is likely to be a certain flood depth or area inundated. Once that threshold is reached or surpassed during an event, a pre-agreed amount is paid. Coupled with a forecasting system, parametric insurance products can even pay out before a disaster hits.
Positive outcomes
Global Parametrics used its parametric expertise to establish a complex and potentially life-changing risk transfer solution tailored for VisionFund and Myanmar. They applied data from JBA flood maps, event sets, and Flood Foresight tools to their risk mitigation insight and experience.
With this combination of technology and expertise VisionFund International is able offer a solution to Myanmar’s farmers. In times of flood, VisionFund is able to improve the ability of farming communities to recover, and even thrive, through innovative disaster recovery lending programmes.
This VisionFund solution was implemented in May 2020 and continues to be fully operational.
Figure 2 (above, right): False colour image of observed flooding 20 July 2020 Irrawaddy River, Mandalay, captured by Sentinel-2 L2A (top) compared to JBA’s flood footprint at 30m resolution (Copernicus Sentinel data 2020 processed by Sentinel Hub).
About VisionFund
VisionFund financial services enable impoverished households to increase their incomes, training clients to grow successful businesses and use their income to support their children and families. Working together as part of World Vision – a Christian relief, development and advocacy organisation – VisionFund microfinance services enable communities to increase economic activity, access clean water, education and healthcare, and benefit from improvements to nutrition, whilst providing the foundations for local economies to flourish.
About Global Parametrics
Rethinking Risk to build more Inclusive Resilience
Extreme weather events and natural disasters are being intensified by climate change, increasing the frequency and intensity of economic shocks that disrupt lives and threaten livelihoods.
Global Parametrics, started with funding from the UK’s Department for International Development and Germany’s KfW, has a mandate to strengthen the resilience to extreme weather and natural disasters in developing countries.
Working with the public, private and 3rd sector, GP uses its innovative climatic, seismic and financial risk modelling to rethink resilience for a new era of risk.
Global Parametrics products are backed by the Natural Disaster Fund (a blend of private and public capital). Like an insurer, the Natural Disaster Fund collects fees and makes pay-outs on parametric derivative contracts when extreme weather or natural disasters occur.
References:
https://www.bbc.co.uk/news/world-asia-33844076
https://www.preventionweb.net/countries/mmr/data/
Read more about parametric insurance and the role of data in the development of parametric insurance products
If you want to learn more please don't hesitate to get in touch
You can explore the importance of risk analytics and risk modelling for disaster risk reduction in more depth in the recent Insurance Development Forum and InsuResilience Global Partnership report, contributed to by JBA.