Jakarta. Natural disasters are still the most frightening scourge in every country. Not because it is a weapon of mass destruction, but because countries do not have proper mitigation and are still unable to recover fast when a disaster occurs.

The Covid-19 pandemic is still with us. Other disasters, including those caused by climate change, are still looming. Several countries rely solely on state finances to cover disaster costs, and Indonesia is no different.

The recent Cianjur earthquake sparked comments on online media. Despite being of a small scale, the earthquake claimed the lives of 334 people and damaged 35,601 housing units, with the majority of the victims coming from the low-income class. The economic losses incurred are estimated at $2.6 billion (Maipark, 2022).

The 2022 disaster state budget only amounted to $75 million, thus marking a financing gap of 97.3 percent. The gap is even more gigantic compared to pre-pandemic, which averaged 78 percent.

And this is only one disaster. 

The National Disaster Mitigation Agency reported that 3,318 disasters occurred throughout 2022. Now, what if disasters occur simultaneously and bring huge losses? If not immediately addressed, the government will face enormous fiscal risks.

According to Deni Friawan, a researcher at the think-tank Center for Strategic and International Studies (CSIS), narrowing this gap requires integrated disaster management, among others, in the form of private sector funding — namely market partnerships such as insurance.

Insurance has become the norm to anticipate unexpected losses, especially in developed countries. Oftentimes, insurance is the main option for financing before other forms of public-private partnerships, such as bonds and catastrophe bonds.

Japan is a country that is leading in disaster management. Every earthquake that strikes Japan with losses of up to JPY 225 billion will be borne by the private sector and Japan Earthquake Reinsurance (JER). On top of that, the Japanese government has contributed up to JPY 12,000 billion to help insurance companies pay claims. 

In Germany, the government cooperates with insurance companies and will reimburse 100 percent of the costs of losses for citizens who are affected by a disaster if they purchase home insurance. In Indonesia, the mandatory disaster protection insurance program for new people is just a policy.

That is why disaster protection insurance is crucial and a priority.

Risk mitigation through funding that relies on the state budget and voluntary, self-supporting communities is still incomplete and has yet to cover disaster costs.

The government's policy regarding the disaster insurance program already exists. In fact, it is just an innovation strategy without implementation. 

Among them are Disaster Financing, Risk, and Insurance (DFRI) and disaster relief cooperation through the South-East Asia Disaster Risk Insurance Facility (SEADRIF), as well as protection insurance programs for state assets. But unfortunately, it is more noticeable in people who do not belong to the low-income class.

The Philippines has a culture that is almost the same as that of disaster-prone countries. Since 2010, low-income individuals in the Philippines are required to have disaster protection insurance using the microinsurance model. They feel comfortable with microinsurance because it is affordable and comes with low premiums, a fast claim settlement time of three days due to rebuilding the house, undemanding document requirements, and easy-to-understand policy contracts.

And in the storm-prone US, insurance is the main option with a parametric model or derivative insurance. This model covers all recoveries that occur without the duration of claim payments and underwriting acceptances, determining claims based on the level of disaster. An achievement if the same thing happens in Indonesia. Is this model relevant? Or just a weak execution?

Most importantly, this insurance model is applicable to the common folk or locally known as wong cilik.  The use of microinsurance or other insurance models is not a burden. But it is part of the poverty alleviation that the Sustainable Development Goals (SDGs) are aiming for.

There are three things that Indonesia needs to take into account when implementing disaster protection microinsurance for the country’s low-income class. 

First, insurance is inseparable from the spirit of mutual cooperation among Indonesians in dealing with the greater complexity of disasters. The insurance concept aims to make it possible to collect premium contributions in a formal and affordable manner, receive partially subsidized premiums from the government, or claim payment mechanisms with certain limits as practiced by the Japanese government.

Second, considering the role that the government has in decision-making, they should work to align mandatory and inclusive insurance policies aimed at protecting the vulnerable or low-income class to get closer to national and international SDG targets and add them to a wider range of intervention options to boost climate resilience.

Third, we need everyone to work together, including the private sector, in implementing and disseminating microinsurance. This is possible by embracing a pentahelix strategy across Indonesia, through information technology, communities, village heads, micro stalls, and other agencies, especially for vulnerable communities in disaster-prone areas.

Indonesia's journey towards becoming a developed country must pay attention to how to handle disaster management properly on a tight state budget. 

The urgency of implementing disaster protection microinsurance, especially for the low-income class, is the right model. 

If we wish to go in that direction, there need to be systematic changes and concrete execution, so that the insurance policy innovations that have been prepared can run smoothly.

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Wahyudin Rahman has a diploma from the Insurance School of Japan. He also serves as the chairman of Indonesian Insurance Writers Community (KUPASI).