Interview with Ariff Ali, Governor of the Reserve Bank of Fiji
Governor Ali, do you have an insurance?
I do. I have a life and medical cover for me and my family, insurance for my car and house. I also take travel insurance whenever I travel abroad.
In your opinion, what role does insurance play for a country, an enterprise or an individual?
Insurance in my view is an important safeguard. Risks are inherent in what we do, as individuals, as an enterprise and as a country, and majority of us do not have the resources to manage all these risks effectively. So insurance is an important risk transfer tool that allows us to mitigate our risks, such that we are protected when faced with loss events.
Two weeks ago in my presentation to the Fijian Parliament’s Standing Committee on Economic Affairs on the 2016 Insurance Annual Report that the Reserve Bank of Fiji produces annually, I highlighted to them again that the risk transfer role that the insurance industry plays is key to the growth of our economy. It provides the necessary safeguard for the financial health of individuals, families, communities, businesses, financial institutions and the economy as a whole.
The insurance industry also plays an information role in providing an indication of existing risks in the economy and probability of loss, and a developmental role in our capital markets, by mobilising savings for productive use.
Why would climate risk insurance be important for your country, the Fiji islands?
You just have to look at the size and location of our country to know that we are vulnerable to climate related shocks. With about 322 islands scattered across 498, 072 square miles of the South Pacific Ocean, we are exposed to tropical cyclones 6 months in every year from November to April, and dry weather which can cause severe droughts in the other 6 months of the year. We are surrounded by the ocean and our vulnerability to tsunamis and sea surges is a certainty.
So with our vulnerability, comes the important need for climate risk insurance. Our recent experience with TC Winston in February 2016 has really brought home the importance of seeking climate risk insurance for our general population.
Climate risk insurance would therefore be very important for Fiji as we seek to mitigate our losses from climate related shocks and build our resilience in ensuring that we can at least protect what we can, when faced with severe perils that our country is exposed to. What can individual house owners and farmers in your country do to be better prepared for climate-related hazards?
Individual house owners and farmers are amongst the most vulnerable in our communities. To be better prepared for climate related hazards, they need to first understand the risks they are faced with, and effectively take stock of resources they have to mitigate their risks. Most of them would not have the tools to mitigate their risks so insurance comes into the picture, and they should seriously consider obtaining insurance cover. The Fijian Government together with development partners are now assisting in designing affordable products in this regard.
“Building back better” is important for our individual house owners. Reconstruction needs to be designed to withstand future climate related shocks. Rather than relying on Government for re-building assistance which may take some time, participation by house owners on ‘build back better’ programmes is essential so that it strengthens their capabilities to cope and adapt.
What our households and farmers also need is the awareness on the importance of insurance and the need to ensure a sustained cover. Our general population tend to have insurance as the first to be dropped off their list of payment obligations when faced with cash-flow challenges, so the need to create the awareness of the protection that insurance provides in times of a loss, is important.
What role do governments play when it comes to climate risk protection?
Governments play a very important role. This has come about because most of the private insurance markets do not cover a lot of the risks arising out of climate change.
Take the case for us in Fiji, where the commercial insurance industry does not have the capacity to provide climate risk protection attributed mainly to reinsurance limitations, and the reason most of our people are not able to get some form of cover. Our insurance companies have not been able to design products that meet the affordability of our people in seeking some basic cover for flooding and tropical cyclones.
Government has therefore stepped in to assist. While at this time, the consideration for the Fijian Government is engaging development partners which can assist with reinsurance, and possibility of subsidising premiums for those who cannot afford a basic cover, establishing a self-insurance pool for climate risk protection should be a consideration for us in the medium to long term.