Introducing insurance for flood prone communities in Nepal

Surrounded by mountains and vulnerable to diverse climatic conditions, Nepal is highly prone to multiple natural hazards. Agriculture is the main source of income for more than 65 % of Nepal’s population and contributes 27 % to the national GDP. Major floods and landslides are a regular phenomenon and cause devastating impacts on agricultural production and communities every year. The riverine communities located downstream of the large Karnali river host the majority of the marginalised and indigenous population and are particularly vulnerable. Despite the immense loss of life and property, so far limited investments in disaster risk reduction have been made.

InsuResilience Solutions Fund (ISF), managed by Frankfurt School of Finance and Management and funded by KfW Development Bank, has signed a grant funding agreement supporting the development of a flood insurance scheme for Nepal’s smallholder farmers and marginalised people.
The project is implemented by a partnership consisting of the NGO Practical Action, as project coordinator, the insurtech Stonestep, the local insurance company Shikhar Insurance Co Ltd and the risk modeller Global Parametrics. ISF is providing co-funding for the product development of this innovative insurance solution.
Thus in order to protect the most vulnerable and marginalised people from the effects of floods, the partnership aims to develop an index-based insurance product. Large parts of the insurance premium will be subsidised by the federal government. Community cooperatives and microfinance institutions will act as insurance policy holder as well as distribution partners. Based on accurate measurement of flood flows and rainfall level by hydrometric gauging stations, insurance payouts will be made and passed on to affected households. The approach foresees an active participation and role of cooperatives, Community Disaster Management Committees and local authorities, to make sure the insurance solution is well embedded in local disaster and climate resilience plans. As such the project will complement the ongoing Flood Resilience Programme of Practical Action contributing to wider flood resilience building efforts in the region.