Building flood resilience through private sector engagement

Tuesday, April 23, 2024

Understanding the important role that the private sector has is vital when implementing initiatives that contribute to a more sustainable future. As a member of the Zurich Flood Resilience Alliance, Practical Action is working with the Nepal Insurance Authority and a range of different companies to introduce index-based flood insurance (IBFI) in Nepal. Initiatives like IBFI contribute to building flood resilience and supporting communities faced with the negative impacts of climate change.

The role of the private sector in disaster risk reduction

The private sector is critical in balancing the supply and demand of services, goods, and solutions in flood resilience building and to provide resources to meet global environmental challenges such as climate change. It plays a crucial role in disaster risk reduction, as highlighted through the adoption of the full commitment and involvement of the private sector, among other actors. 

Its role varies from corporate social responsibility activities and creating an interface between businesses and communities, to ensuring that innovative technical solutions for disaster risk reduction and climate change are integrated into core business operations.    

Practical Action’s engagement

Practical Action has decades of experience in developing effective flood early warning systems (FEWS) in countries like Nepal. Its partnerships with the Z Zurich Foundation, InsuResilience Solutions fund and Swiss Re Foundation have enhanced flood resilience in impacted communities like Rajapur, Geruwa, Janaki and others in the Lower Karnali region. 

Local cooperatives meeting to discuss index based flood insurance in Lower Karnali, Nepal. Photo credit: Practical Action

Examples of private sector engagement in the delivery of IBFI include:  

  •  Supplying and installing telemetry equipment – backed with technical support from the Department of Hydrology and Meteorology – to establish a FEWS and potential IBFI. 
  • Global Parametrics using historical data from river induced floods to create policies that cover flooded in-land properties like paddy fields.
  • Insurtech firm, Stonestep, building capacity and administration of IBFI.  
  • Approving the IBFI in the insurance company’s name which then enables Shikhar Insurance Company Limited to sell this product.  
  • Private entities functioning as the aggregator of IBFI by helping farmers to enroll in the policy and informing them when flood triggers have been met and they are eligible for payouts. Once eligible, the payout is deposited to the farmers’ cooperative or bank account.  

The private sector also contributes to the building of flood resilience by other means, including: 

  • Private technical institutes developing training packages for electricians, masonry, carpentry, embroidery, cooking and more.  
  • Material suppliers like hardware stores supplying the infrastructure materials.
  • Consultants conducting studies and producing reports on Nature Based Solutions to provide guidance for local governments regarding where to work.  

Challenges faced in private sector engagement

One of the challenges faced by non-government and civil society organizations when working with the private sector is misaligned objectives. Non-governmental and civil society organizations are more focused on poverty reduction and ensuring that communities have access to the finances and resources they need. Private sector partners have difficulty in recognizing the importance of community participation and tend to place focus on profitability rather than poverty reduction and community participation.      

For example, the IBFI administration is made simple with the enhancement of IT capacity and systems supported by the private sector to upload farmer’s documents to enroll in the insurance policy. However, the backup system comes with a cost, and the IT company are reluctant to figure out how the communities will manage the cost of the backup system beyond the project duration. Private sector organizations failing to consider how communities will take forward the cost of insurance administration beyond the project then impacts the effectiveness of disaster risk reduction and resilience building. To mitigate this, Practical Action has consulted with IBFI project partners to facilitate negotiations on IT company service rates and assist in the improvement and development of IT systems for digital administration of IBFI.  

Farmers enrolling in index based flood insurance in Nepal. Photo credit: Prabesh Chaudhary

Key takeaways

Private sector engagement in climate-smart, risk-informed development is not easy without the business continuity of the private sector. Introducing IBFI has ensured continuation of resilience building beyond the project duration, along with community involvement, ensuring functioning of supply/value chains, more risk-informed services and business models and multifaceted partnerships with not-for-profit organizations. 

Through the introduction of IBFI, Practical Action has learned that such products must be created with both the community demands and the private sector demands in mind. For example, in the context of farmers, the IBFI product must create business for the insurance company but also deliver to the needs of the farmer, so that they are protected against catastrophic losses and damages caused by floods. Introducing the financial resilience of communities is highly effective in minimizing the lasting impact of flood events. Our partnership with both the government and the private sector in Nepal shows how post-disaster funding needs can be accessed more swiftly, reducing the time required for communities to recover and freeing up more resources for increasing long-term resilience.  

Take a look at this blog for more details on index-based flood insurance in Nepal.  

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