GIIF is funded by the European Union, Japan and the Netherlands.
The EU is the primary donor partner to the GIIF Trust Fund with a focus on the African, Caribbean and Pacific Group of States (ACP). The governments of Japan and the Netherlands are providing additional support to different regions/countries where IFC operates.
MAIPARK Indonesia (Earthquake Index Insurance Indonesia)
EQII product to launch in 2014
Maipark is the client – target market includes insurance companies, commercial banks, regional banks, and MFIs
PT Asuransi MAIPARK,
Earthquake index insurance (EQII) product to cover the loan portfolio of financial institutions
Total Insurance Portfolio
US$5 million of total FI/MFI lending portfolio protected by EQII policy by 2015
Average Cost of Insurance
Not yet designed
Increased Credit: Ultimately, the project expects FI's use of EQII to facilitate US$50 million in additional financing to the working poor and MSMEs by 2019.
The project will increase the resiliency of FIs to earthquake disruption and facilitate more rapid recovery following a severe seismic event.
Indonesia's earthquake hazard exposure is among the highest in the world, both in terms of human mortality and economic loss. Over 12 million Indonesians live and work in high-risk earthquake hazard zones, and the economic exposure is estimated at US$79 billion.
Events such as earthquakes create losses for financial institutions, eroding capital reserves and compromising their ability to lend. The team undertook rapid risk appraisals of MFIs in earthquake prone areas (Yogyakarta and Padang) and established MFIs vulnerability to earthquake events as shown by the following statements taken from the survey:
"Many clients withdrew their savings following the earthquake, nearly 40% in the most affected area and 30% of the total portfolio. Loan demand slowed by 25% and took six months to a year to recover" "Loan non-performance jumped to 17%...most members took a year to restart their business and recover... liquidity and reserves fell to very low levels."
IFC will provide advisory services to PT. Asuransi MAIPARK Indonesia (a national private re-insurer for earthquake risks in Indonesia) in the following areas: (i) support the technical design and development of an earthquake index insurance (EQII) product; and (ii) build the capacity of PT. Asuransi MAIPARK Indonesia and selected financial institutions to administer, price, and distribute the EQII product to the retail market segment.
Too early to tell
The capacity to create and market index insurance is lacking in financial institutions in Indonesia though they possess a certain level of financial sophistication to recognize the value of a new innovative financial product. Thus, the project will address the market failure by tackling the insurance industry's lack of local technical capacity to model, design, and distribute complex portfolio-level insurance products such as index insurance.