Shariah compliant insurance for weather-related disasters to be tested in the Philippines

On the back of an increasing number of weather-related disasters, the sustainable insurance and Takaful facility that was presented during COP23 in Bonn, Germany and expected to be launched during the first half of 2018, seeks to provide climate-related insurance protection to vulnerable people, communities and MSMEs in vulnerable countries exposed to climate change. MARC ROUSSOT reports.

This initiative, led by the Climate Smart Network — a group of Philippines-based public and private stakeholders advocating for the integration of climate smart measures in their decision-making process in pursuit of low carbon and climate resilient development — will first be implemented in the Philippines as a pilot project in order to create a working model that could be replicated in the 43 countries that are part of the Vulnerable 20 Group, an association of nations from all over the world that are most affected by the catastrophes rooted from climate change.

“The Takaful would kick in when there is an extreme event happening, for example a category five storm, affecting MSMEs’ business operations, facilities or workers, leading to a loss of revenue,” shares Rey Guarin, a climate advisor at the Climate Smart Network. “There is also a component where the Takaful would be utilized to rebuild infrastructures,” adds Guarin who explains that in case of climate events, the funds would be channeled electronically utilizing mobile banking.

The premiums — about US$10 per year for a coverage amounting to US$1,000 — would primarily come from the private sector, small businesses and individuals while local government units and international fund raisers/donors, including the IDB, would be tapped in a second phase.

The fund, expected to reach an amount of about US$30 million in the case of the Philippines, will be invested into Shariah compliant asset classes like Sukuk and will be managed by professional asset managers. In this regard, collaboration has been initiated with the Al Amanah Islamic Investment Bank of the Philippines.

“There are communities around the world that are unserved as the existing conventional products are not aligned with their beliefs. I think that it exacerbates their vulnerability because they do not have access to an insurance facility that will help them in case of climate-related events. This is why the creation of a product like the sustainable insurance and Takaful facility will increase the coverage of people that are unserved due to the lack of instruments,” affirms Guarin.

This is an excerpt from an interview with Rey Guarin, a climate advisor at the Climate Smart Network leading the development of the sustainable insurance and Takaful facility. To listen to the full conversation, log on to IFN Podcasts.

This article first appeared in IFN Volume 14 Issue 50 on the 6th of December 2017

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