What Can Super Typhoon Rai Teach Us About Financial Inclusion?

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Typhoon Rai made landfall in the Philippines in December 2021, killing over 400 people, devastating 1.5 million homes, and causing over US$1 billion in damage. Extreme weather events like Rai are becoming more common as a result of climate change. Financial services can make households more resilient and adaptive, but too often the people who are most vulnerable to these shocks—such as women, poor people, forcibly displaced people, and people in rural areas—are also financially excluded. In this episode, we travel to the Philippines to speak with a Typhoon Rai survivor and the insurance provider that helped her rebuild her home, as we explore the changing role of insurance and other financial services in climate change mitigation and adaptation. 

This is the third episode in CGAP's new podcast, Inclusive Finance Frontiers.

Featured Voices

Astrid Zwick, Head of InsuResilience Secretariat & Co-Chair of Insurance Development Forum’s Inclusive Insurance Working Group  
Emilie Fernandes, Philippines Country Director between February 2021 and September 2022, Relief International 
Lorenzo Chan, President and CEO of Pioneer Inc., holding company of the Pioneer group of insurance companies in the Philippines 
Annaliza Hermano, a Pioneer Insurance customer who experienced typhoon Rai
Wendy Chamberlin, CGAP Consultant 


Yasmin Bin-Humam: Hello and welcome to Inclusive Finance Frontiers presented by CGAP, a global partnership that works to advance the lives of people living in poverty through inclusive finance. I'm Yasmin Bin-Humam, a CGAP financial sector specialist, and this episode's host. I'm joined by my co-hosts, Sai Krishna Kumaraswamy. Hi, Sai.

Sai Krishna Kumaraswamy: Hi, Yasmin.

Yasmin Bin-Humam: So, Sai, I don't know if you recall recently watching the devastation of Hurricane Ian on the news.

Sai Krishna Kumaraswamy: I wasn't watching it, Yasmin, because I was stuck in it.

Yasmin Bin-Humam: Oh my goodness. What was that like? Was it torrential rains, high winds?

Sai Krishna Kumaraswamy: We four hours from where it made landfall, heavy rains, howling winds, people running around everywhere seeking shelter. It was harrowing.

Yasmin Bin-Humam: I would have been terrified. I'm not made for disasters like this, and I think such disasters are on the rise because of climate change. Do you recall a year ago, Super Typhoon Rai, which hit the Philippines?

Sai Krishna Kumaraswamy: I remember reading about it. It sounded devastating.

Yasmin Bin-Humam: That's right. It hit the Philippines hard and left a path of destruction with over 400 people dead, 1.5 million homes destroyed and more than $1 billion in damages. What's your reaction to things like this?

Sai Krishna Kumaraswamy: It's undeniable that climate change has an important role to play in all of this. The loss of life is bad enough, but I'm curious how affected communities cope with the terrible financial losses these events cost.

Yasmin Bin-Humam: Yeah, and we found that most often the people who are most affected by climate change, those who are most vulnerable, are the financially excluded and they don't have the requisite financial services to help them build resilience and respond to these shocks. Today we're going to talk about some possible ways to counteract this. We're visiting the Philippines to see what happened during and after Typhoon Rai. We're going to learn about the changing role of insurance and other financial services in climate change adaptation. I'm curious to hear from a survivor and from the insurance provider that helped her rebuild her home. Are you ready, Sai?

Sai Krishna Kumaraswamy: Yes, I am.

News report: Typhoon Rai made landfall originally on Thursday in the eastern Philippines on the island of Surigao. Rai is the equivalent of a category five hurricane with wind gusts topping 300 kilometers per hour. This is pretty much a worst-case scenario.

Yasmin Bin-Humam: At around 1:30 p.m. on December 16, 2021, Super Typhoon Rai made landfall in the Philippines. A Category 5 monster with wind speeds up to 160 miles per hour—or 260 kilometers per hour—it was the largest of the 15 typhoons to hit the island nation that year. The hurricane swept through the country, with heavy rain, floods, and mudslides. It obliterated homes, uprooted trees, blocked roads, and downed electrical poles.

Annaliza Hermano experienced Rai—or Odette as it was called in the Philippines—firsthand…

Annaliza Hermano: At the height of typhoon Odette, when the wind was getting stronger, I was worried that our roofs will be blown off.  That is our usual problem during strong typhoons. The roofs get blown off. Our banana trees fall over. In our situation, our primary source of livelihood is our banana trees. We also raise hogs.

When Odette was about to hit, the policemen from Municipality of Taft came and said that there is an evacuation center for those who would like to evacuate. We registered right away and reserved one room since we are 10 in our family. One day before the typhoon hit, we already evacuated to Taft, Eastern Samar. There were around 120 families there.

When we came home from the evacuation center, the sight of our damaged roof immediately caught our attention—the roof of our house and our pig pen. Also, the banana trees in our backyard fell over.

Yasmin Bin-Humam: In the months after Rai, Annaliza’s husband was hospitalized and eventually passed away, only adding to her financial difficulties.  

Emilie Fernandes, the country director for Relief International in the Philippines between February 2021 and September 2022, says that the Philippines is one of the most at-risk countries for natural disasters. Typhoon Rai was the most destructive in a series of typhoons in a short period of time:

Emilie Fernandes: We see that over the past two years we have had yearly super typhoon, whereas before the super typhoon, which means in fact, the highest category of the typhoon, were a little bit more spaced, but the last super typhoon was already in 2020, and we had a super typhoon in 2021 and so we just hope that it will not happen again in 2022, but imagine the damage of the super typhoon to  the most at risk households. It blew everything in the area

It affected more than 12 million people, damaged around 2.1 million houses. In some villages, almost 95% of the houses were destroyed, not only houses, but schools, hospitals, health centers, plantations, crops—everything was destroyed.

Yasmin Bin-Humam: Destruction was widespread and long lasting. More than a month after the storm, the International Federation of Red Cross and Red Crescent Societies reported that millions of people still needed homes, basic supplies, and health care.

Emilie Fernandes: I visited one of the areas back in March. So it was already three months after the typhoon, but you could still feel the devastations and some houses were not repaired yet, and people were still afraid.

Yasmin Bin-Humam: Astrid Zwick, head of the InsuResilience Secretariat and co-chair of the Insurance Development Forum’s Inclusive Insurance Working Group, says that the losses due to climate change have increased fourfold since the 90s due to an increasing number of extreme events

Astrid Zwick: This is unprecedented in history, and we need to really address these challenges. If we look at the number of the losses, the costs are really on the rise, the costs of climate change disasters, and we can take some numbers of reinsurance companies.

Yasmin Bin-Humam: Astrid says that according to the Munich Climate Insurance Initiative, worldwide natural disasters have caused substantially higher losses in 2021 than in the previous two years. In 2021, natural disasters cost over a loss of 280 billion US dollars, of which roughly only 120 billion were insured. These losses are unevenly distributed because of the huge gap in protection between people in industrialized countries and those in low-income countries. This results in an unequal buffer against financial losses which amplify economic inequalities particularly among the poor.

Astrid Zwick: You can see that in high income countries, insured losses make up about 50% or so, even more than 50%. In low-income countries, and especially those are extremely vulnerable, these losses are much less covered. Sometimes 90% of losses are uninsured; depending on the source you're reading, you also even see that even 98%. So, the majority of losses remain uninsured.

Yasmin Bin-Humam: Those uninsured losses don't just disappear. They are born by someone – it may be governments as the insurer-of-last resort, charities via aid relief, or by individual people and households. And according to the sixth assessment report of the Intergovernmental Panel on Climate Change, or IPCC, 3.3 to 3.6 billion people are highly vulnerable to climate change and up to 15 times more likely to die from extreme weather than people living in the least vulnerable places. It’s a problem that is not going away.

Astrid Zwick: Even if we do a lot to mitigate climate change, we will encounter negative impacts that need to be covered. On top of that, we also see not only climate change, but other risks arising like the pandemic crisis, we had, that reduce also the fiscal space, that reduce budgets in low-income countries and aggravate the situation.

Yasmin Bin-Humam: From a global development standpoint, these events present huge risks to poverty reduction. For example, a 2017 World Bank study across 89 countries found that floods and droughts cause roughly 21 million people to fall into poverty every year. The IPCC has estimated that even under modest warming scenarios, climate change will increase poverty by 130 million people by the end of this decade.

When a storm like Rai hits, its usually socioeconomically excluded groups — such as women, poor people, forcibly displaced people, and people in rural areas — who are most vulnerable. On the one hand, these groups often face unique risks. For example, women are at greater risk of gender-based violence in the aftermath of extreme weather events and may have difficulty meeting maternal, sexual or reproductive health care needs. Super Typhoon Rai displaced at least 1700 pregnant women and damaged health care facilities. But these groups also face the biggest barriers to accessing public services and other resources that could help them mitigate these risks. Emilie Fernandes says that women in the Philippines were already adversely affected by COVID-19:

Emilie Fernandes: Everything is stopped, then nobody, for instance, the street vendors or the woman who were preparing meals in the, in the markets or selling clothes, et cetera, markets are closed. So they have no more income. And so they are one of the most affected, family in terms of the COVID-19. And if you add the typhoon, it adds, as I mentioned a layer on their vulnerability and because they have to take care of the household, so they have more burden on them. Because of the typhoon as well, not only in terms of the income, but also in terms of the additional burden on them for dealing with the impact of the typhoon.

Yasmin Bin-Humam: Wendy Chamberlain, is a consultant working with CGAP. She spends most of her time focusing on understanding the role that financial services can play in helping vulnerable individuals and households navigate climate shocks and stresses.  

Wendy Chamberlin: I think what we're seeing is that poor people are already vulnerable, by virtue of being poor. They have limited assets, fixed assets and resources. They are often in livelihoods that may not be secure by virtue of the amount of income that they earn by virtue of the seasonality of them by virtue of the growth opportunities or the connectedness to markets, that those, those livelihoods may have. All of those things do not promote an increased state of resilience.

When we layer on a shock or a stress it doesn't even have to be climate, it can be COVID-19 which we are still very much in the throes of. Those things which make people vulnerable or increase their vulnerability, become all the more vulnerable. We're in a world right now where people don't experience these shocks and stresses in a cut and dry fashion. Oftentimes, there's a compounding of these events that happen simultaneously. And so, when we talk about the lived experiences of individuals, we have to recognize a world where they're still dealing with the aftershocks, or they're very much in the throes of COVID-19 compounded by a world, a severe climate threats.

Yasmin Bin-Humam: Wendy argues that we in the financial inclusion world need to ask ourselves, 'how can financial services respond'.  She says the answer isn't always straight forward.

Wendy Chamberlin: We have to think about what is the experience of people who are experiencing these climate shocks and stresses? How are they preparing for them? How are they coping with them and how are they adapting to them? The answer to the initial question is like, we don't have the answer yet of what is the solution. Likely, it's going to be that there's not just one product or service that is going to address all the challenges that people face when they are threatened with the effects of climate risks.

And so that means we have to be creative in our sector around what is the role of existing products and services? How do they need to be reconfigured? But we also first need to understand what are people doing today, that's working for them. And where are the gaps that can be addressed by financial services?

Yasmin Bin-Humam: So, there’s still quite a bit that needs to be figured out. But one method that’s being used to fill this gap is a kind of low-cost insurance called microinsurance.  When it comes to the type of flooding that people experience during storms like Rai, microinsurance policies can be particularly impactful. As defined by the International Association of Insurance Supervisors (IAIS), microinsurance is “the protection of low-income people against specific perils in exchange for regular premium payments appropriate to the likelihood and cost of the risk involved.”  

Microinsurance is much like conventional insurance, but it’s aimed at low-income households that may have few financial resources and unstable incomes. It has low premiums and coverage limits that can be paid in sporadic installments to help people get back on their feet. Plus, the policies are written simply so that they can be easily understood by people with limited education.

The InsuResilience Investment Fund says that microinsurance payouts often reach people faster than emergency relief payments from governments or NGOs, reducing their dependence on emergency funds and compensating them directly.

For Annaliza Hermano, having microinsurance from a company called Pioneer — one of the only insurers offering climate risk microinsurance in the Philippines — helped her, her family and their business recover.

Annaliza Hermano: It helped a lot. For example, the roof of our house was badly damaged, but if you have calamity insurance, then you can claim from the calamity benefit.  You can use the money for house repair caused by the typhoon. You don’t have to worry where to get the money to buy roofing materials.

Yasmin Bin-Humam: And she was able to do more than just repair the damages to her property. The payout from her insurance helped her to improve her livelihood.

Annaliza Hermano: I even bought an oven because I know how to bake. I take orders for cake to supplement our income. With the remaining money from the insurance claim, I opened a bank account

Yasmin Bin-Humam: But like many financial services, climate risk microinsurance remains out of reach for most people in the Philippines and other emerging markets. In fact, the Swiss Re Institute — the research arm of one of the world’s largest providers of insurance and reinsurance — says that the natural catastrophe risk coverage level in emerging markets is just 6%. While the insurance gap in high-income countries has shrunk over the last 40 years, it remains in emerging markets. This reflects Emilie Fernandes’ experience:

Emilie Fernandes: I would say for now we are just at the beginning. Insurance is rarely implemented, especially not at for the most at risk. It may exist for the hotels or the tourism sector or the big companies, but really for the most at risk, it doesn't exist, really and people don't have really, I think the capacity to invest.

Yasmin Bin-Humam: There are many reasons why the market for climate risk microinsurance remains underdeveloped around the world. Astrid Zwick says that there’s not much understanding for the concept of insurance.

Astrid Zwick: Insurance is a difficult concept, it's less tangible. The product is not tangible. It's a promise. And you have to keep your promise and of course, this means you have to trust the partner with whom you do insurance. And I know that in the past decades, also a lot of experience and also bad experience has been encountered, but with the further development of really good micro insurance solutions. This concept is taken up more frequently, but we have to build a culture of insurance, in these markets. And this is what's basically lacking. So I think accompanying with an offer of insurance products and even the normal, the basic insurance products we need to do campaigns and explain the concept of insurance well. That's on the one side, it's the side off raising awareness about the concept, but on the other side, it's also raising awareness, not only for the individuals, but also for the regulatory authorities sitting in the government that are, let's say providing the framework for insurance and insurance solutions and the respect of products.

Yasmin Bin-Humam: So how are these issues playing out in the Philippines? Pioneer Insurance, the company that provided Annaliza Hermano with her insurance policy, has helped people recover from Typhoon Rai, and an earlier Typhoon, Haiyan.  As described by Lorenzo Chan, President and CEO of Pioneer Inc., the holding company of the Pioneer group of insurance companies in the Philippines, it’s vitally important to expand coverage in the Philippines but also very challenging. He echoes Astrid Zwick in that insurance is not always understood and can have a negative stereotype.

Lorenzo Chan: Unaffordable, inaccessible, difficult to understand and hard to claim. So that's one negative bit. And then you compound this with their reality on the ground, which is. Typhoons never hit us, I mean, we've never been hit by a typhoon, and I've lived here for 30 years now, so I don't have to buy.

Yasmin Bin-Humam: On top of that, there aren’t enough microinsurance providers out there…

Lorenzo Chan: This is such a contentious issue, because people keep telling me, is there a business case? My answer is yes, there is a business case and we are living proof of that. But for it to work, you have to be willing to commit and you have to be willing to go beyond it as a business case. Because, if it's not going to be easy peasy, it's not just going to take off the moment you launch it. There's so much reinvention and innovation you have to introduce, but it will work.

Yasmin Bin-Humam: It can also be hard to convince customers of the advantage of paying now for a future benefit. Bundling with kinds of insurance that have a stronger demand, like health insurance, and offering competitive pricing for the target consumer can be helpful.

Lorenzo Chan: Whatever it is we offer, it must address, clear needs. What are they most exposed to? Which is why a number of the products we offer are bundled products. So it's a bit of this and a bit of that, because at one go this oldest exposure to life and health or life and limb, if you can call it that and property, so there's that. The second issue is affordability. It's no longer an issue, is it expensive or is it cheap? Because as you all know, that is all relative, isn't it? $5 may cost a lot to somebody, but nothing to, to someone to the, to the guy next door.

Yasmin Bin-Humam: Lorenzo often deals with questions about the efficacy of insurance claim payouts even though they may not necessarily restore or make claimants whole again.

Lorenzo Chan: Now people often tell us, oh, Lorenzo this is a pipe dream. You'll never get them to cover enough you'll never give them the cover that they need. Yes, man, I don't deny that. I think if we seek to give everybody the cover that enough cover for, for their needs, they will not be able to afford it. Now, so what we try to do is to offer them cover that enables them to rebuild and restart. And very often that is enough.

So there's a, there's still a part of education that is required, and so how do you, how do you do that? Now, the insurance company can go out there with its representatives and start yakking away. But we all know that insurance is not the most beloved industry.

Our whole objective is to make sure that people can benefit. It means we have to engage in them, and sometimes if we do it on a direct basis, it doesn't always hold water. So you look for partners, we look for partners on the ground. Entities, organizations that they trust. Entities that they frequent, even brick and mortar institutions that, that they've, that they frequent. So there, so in so doing, we hopefully ride on a bit of that credibility of these or of these other organizations in the eyes of these market so that it helps with the acceptance. It helps with the acknowledgement.

Yasmin Bin-Humam: Lorenzo says that partners in these efforts include not only microfinance institutes, but supermarkets, pawn shops, motorcycle distributors, and even some schools. But convincing customers of the need for insurance and getting them to purchase policies is only the first step.

Lorenzo Chan: What happens afterwards is critical, pay claims, pay claims, pay claims. I'm talking about legitimate claims that is vital. And with inclusive sector, it's not just paying claims. It is how quickly do you process and pay claims? Because that is the actual proof, to them of what they bought. Is there value? Is it going to come through? How soon do I get it? Because if you, if you make them go through the hoops and pay them after six months, you are going to, you're going to lose a client, you fought so hard to win.

Yasmin Bin-Humam: Annaliza was amazed at how quickly she received her benefits.

Annaliza Hermano: We had a meeting on a Tuesday. I submitted my requirements on Wednesday. Then I received the money transfer on Friday. I got the cash Saturday morning. From Wednesday to Saturday, around 4 days!

Yasmin Bin-Humam: While microinsurance remains an exciting, if underutilized, development for narrowing the protection gap in the Philippines and other places, Wendy Chamberlain feels this is only the beginning of the conversation.  

Wendy Chamberlin: I think micro-insurance is absolutely relevant. I think if we put a period at the end of the sentence and say, so that's good, we're done. We've got our product to solve all of this, we will have missed the mark. Just like we have missed the mark historically. When we have it, when we think that one type of product or service will really be the thing that addresses what we're talking about. Micro-insurance is one important tool in the toolkit. There's been some really good success cases. But the ability for it to scale in certain markets still needs to really be proven out. We know that it's utility for women, small holders, for example, still needs to be really be proven out. And yet we do see examples when it is bundled with other services that it actually can provide a greater value add for customers.

Yasmin Bin-Humam: Lorenzo Chan however feels very optimistic about the opportunities offered by microinsurance in the developing world.

Lorenzo Chan: people keep asking me if it's a reality. If this is realistic to think that inclusive insurance or micro-insurance or green insurance, whatever you call it is going to really is going to really see light of day and make a real impact. My answer is, it already is making an impact. I just wish more people were willing to take a chance and to commit to it. Like I say, there is a business case but you have got to look beyond it for it to make sense, the commitment at it, because there is a lot of people to help. And again, it's not a matter of if. It's a question of when and when it happens, you want people to be prepared, because if they're not prepared, it affects you. It affects me. It affects them.

All right. We now have this beautiful tool, this wonderful tool. It's not a cure all. But it's a great empowering tool, an enabler.

Yasmin Bin-Humam: Astrid Zwick has a similar feeling of optimism based on the numbers she is seeing:

Astrid Zwick: We have reached by 2021, by end of 2021, 150 million poor and vulnerable people, that are covered through about 25/24 programs under the injury resilience global partnership in more than 100 countries with more than 300 projects.

Yasmin Bin-Humam: So putting this all together, what can we learn from Super Typhoon Rai? There are many lessons, but one is the importance of financial inclusion in building peoples’ resilience to climate change. Government safety nets have a huge role to play, and solutions should not be left to the private sector alone. But climate risk microinsurance and other household financial services can and should be part of the solution. As we know from Annaliza Hermano, it can be lifechanging.

Annaliza Hermano: It was a big help because now, we don’t have to scout around for people to borrow money from.  It’s not easy to just buy a new roof especially when you don’t have the money for it, since our day-to-day earnings are already ear-marked for our daily expenses especially since I have a son in college and two are in High School.

In other words, if you have calamity insurance, you have something you can rely on for those unexpected expenses. And that is really a big help to us. I’m sure if I didn’t have insurance, up to now, I would still be buried in debt.

Yasmin Bin-Humam: Sai, we heard from a wide range of guests in today's episode, and has your question from the beginning of the episode been answered? Do you know more about how people are coping with the financial losses?

Sai Krishna Kumaraswamy: There's a lot to take in from this episode, Yasmin. There is the big picture stuff about the rising effects of climate change, the rising costs of climate change, and the differential impacts it has. One thing that struck me most is that the costs of climate change are borne unevenly between rich and poor people in the same society and between societies that are well off and low income. Microinsurance has become a lifeline for many poor people in the Philippines. They clearly have very limited access to mainstream insurance services, and it would be really important to better understand the use cases for microinsurance and expand the shoot of products and services that could help them cope with the effects of climate change.

Yasmin Bin-Humam: Yeah, Sai, I think Astrid put it best when she explained that it's about taking the burden of risk mitigation off of the families of the poor, those who are affected by the disasters, and shifting that risk to the markets, and the insurance markets need to evolve. At the level of individual microinsurance provision, I think it's about affordability, it's about fit for the customer, it's about trust, and based on today's episode, our speakers seem optimistic and so am I. What about you?

Sai Krishna Kumaraswamy: Me as well, Yasmin.

Yasmin Bin-Humam: Well, thank you for joining me and thank you to our listeners for tuning in to the Inclusive Finance Frontiers Podcast from CGAP. If you enjoyed this episode, please subscribe to our podcast and spread the word among your networks. Special thanks to our episode guests, my co-host Sai, the CGAP podcast production committee, and CGAP's production partner Volubility Podcasting.