Indonesian Finance Minister Sri Mulyani Indrawati yesterday said that a natural disaster financing strategy and disaster risk insurance scheme would be introduced in 2019 to deal with the impact of Nat CATs in the country.
"We need to identify all the natural disaster risks and think of the best fiscal mechanisms and financial instruments to support the most effective and fastest rehabilitation," said Sri Mulyani at the “High-Level Dialogue on Disaster Risk Financing and Insurance in Indonesia", held on the sidelines of the annual meetings of the World Bank and the IMF in Bali that are held this week.
She explained that one of the reasons for the formation of a disaster insurance scheme is because the government only relies on the state budget (APBN) and fiscal re-allocations for natural disaster relief and reconstruction. This dependency has a risk if the impact of natural disasters that occur exceeds the ceiling of the disaster fund allocation. Regional governments rely on funds transferred to the regions.
The insurance scheme would cover state-owned property. “If we have insurance for government property, at least we would be able to plan redevelopment quickly, because it is not constrained by our budget," she said. The scheme could also help affected households and restore the social life of the community affected by a natural disaster.
As a first step, the government will begin to set aside funds in the 2019 State Budget for the formation of this risk insurance scheme and discuss this plan further in Parliament. Another step is to prepare a "pool" as a relevant fund management instrument to complement the state budget.
This policy is a breakthrough because it provides funds for the period before, during and after a disaster for the medium to long term and minimises bureaucracy in funding.
"We rarely discuss risk transfer, including financing. Disaster management is not synergised nor integrated," Sri Mulyani added.
The choice of the fund management model for disaster risk includes opening a special account at Bank Indonesia, assigning government work units and establishing a Public Service Agency specifically managing disaster risk financing.
In addition, Sri Mulyani will hold a dialogue with insurance companies that are to be involved in the disaster risk financing model.
"We will talk to the insurance industry, because usually if there is a total loss, our insurance industry is not strong enough to handle it," she said.
She said that the government would determine which risks would be financed by itself, which risks would be transferred and how to choose appropriate and efficient disaster protection instruments.
Currently, insurance companies are not keen on covering Nat CATs that are almost certain to occur, such as floods, if the insurance is not accompanied by improvements to flood management and upstream reforestation.
Records show that losses caused by disasters during the period 2004-2013, reached IDR126.7trn ($8.3bn). Over the past 12 years, the government provided an average reserve fund for natural disasters of IDR3.1trn.
World Bank data show that Indonesia is among 35 countries in the world with a high risk of casualties due to disasters.
World Bank Group president Jim Yong Kim, who also took part in the event, said Indonesia could consider alternatives for its disaster financing needs such as the South-east Asia Disaster Risk Insurance Facility which was launched earlier this year in collaboration with Japan.