How microinsurance can provide “macro” support

Life, routine, and productive activities were stopped in order to respond to the crisis situation caused by the Coastal El Niño Phenomenon (known in Spanish as FENC). The FENC is a natural occurrence that started during the latter part of November last year, and which destroyed the lives of 158 people, aside from eliciting damages in infrastructure facilities, housing, business, agriculture and livestock, valued over billions of euros.

Everyone did their part to help in the rescue and search tasks, as well as in relocation needs of the survivors. However, following the initial shock, the Peruvian society was suddenly faced with a devastating new reality.

Unfortunately, many people had to start leading their lives from scratch, namely Karina Ferrer (Chimbote), María Broncano (Huarmey) and Rosa Poma (Huarmey). They are female entrepreneurs of Financiera Confianza (FC), the BBVA Microfinance Foundation’s entity in Peru. From one day to the next, they witnessed how the floods and mudslide dismantled their businesses in Áncash, one of the most affected departments of the El Niño phenomenon, and where 60% of unemployment was registered after the event.

<strong><br />
&quotBefore the <em>El Niño</em>, business was doing good, we were working well. After the <em>huaico</em> we were left without our store, it was horrible. </strong><strong>All of the shops around here closed, and we found ourselves climbing the mountains to find refuge where we built a home and stayed for almost two months.&quot</strong><strong>- Karina Ferrer</strong>

&quotBefore the El Niño, business was doing good, we were working well. After the huaico we were left without our store, it was horrible.
All of the shops around here closed, and we found ourselves climbing the mountains to find refuge where we built a home and stayed for almost two months.&quot- Karina Ferrer

Meanwhile, in Colombia, people are living a similar reality. More than 2,000 km north of Perú, the residents of Mocoa (Department of Putumayo) continue reconstructing their lives at the advent of an avalanche that wiped the city out in April this year and headlined all news outlets worldwide. The heavy rains that caused rivers to overflow- floodings and mudslides swept everything in their way, from houses, to bridges, trees and vehicles. 40% of the city was ravaged, leaving a total of 320 dead and hundreds missing.

Even though the reconstruction efforts started in May, many inhabitants still live distressed. They are aware that aside from having to rebuild housed and reactivate basic services (water and electricity), they are faced with the survivors’ lack of jobs. This is a big challenge, given the discouraging scenario left behind, where practically all the small businesses in Mocoa were affected: 41% of them reported total damages in their commercial premises, while 59% suffered partial damages.

One example is Nancy Marcela Encarnación, a client of Bancamía, the Foundation’s entity in Colombia. The night of the disaster, she was in the second floor of the building where her beverage distribution shop is located. When she woke up, she found everything was covered with mud and all the merchandise worth 4.7 million pesos (around 1,300 euros) was wasted. Just like her, Walter Vergara also had to rebuild his bullhorn advertising service when he saw that his storage unit was totally wrecked, along with his equipment and vehicles. On his part, Alirio de Jesús saw how the waters flooded his warehouse containing repair and replacement materials, as well as motorbikes and he was not able to salvage anything.

The path to reconstruction is lengthy but promising

For Peru, it was estimated that the reconstruction costs which would be equivalent to 4% of the country’s GDP, will help boost its 2.2% predicted growth. In Colombia, 330,000 million pesos (94.5 million euros) will be destined to build 1,200 new houses, a hospital an aqueduct and an electric plant, among others. These efforts are expected to regenerate employment and reestablish lives. However, experts agree that in all reconstruction processes, the biggest determinant to achieving the targets lies on the survivors’ willingness and capacity for action.

Karina, María, Rosa, Walter, Nancy and Alirio are perfect examples, who, like the other survivors, bear a strong will to move on. Like other entrepreneurs served by the BBVAMF, they possess a tool that has helped them during tough moments like these: microinsurance– a product focused on the needs of vulnerable people who rely on their productive activities as livelihood. Microinsurance has given them greater response capacity. According to clients, the microinsurance they’ve acquired made it easy for them to rise again: it has made it possible for them to pay loans and has assisted them in replacing their capital and other materials to rebuild their businesses.

“I used the money to pay bills because after the avalanche, we had to close down for 20 days and we didn’t make any sale, nobody came, I remained more than a month and a half away from here… there was an epidemic threat. The money I received helped me pay some loans I acquired, aside from the bills”, shared Alirio, adding that the compensation amounts were “a great support for my business, for my solvency.”

In the face of adversities like FENC or the Mocoa tragedy, the vulnerable population’s economic insecurity is manifested through the greater effect that an unforeseen shock brings upon them. That is to say, aside from the lack of resources to protect themselves from the unexpected, they also possess insufficient response mechanisms.

Solutions coming from the local and national governments, although necessary, most of the times are not enough, or they don’t arrive fast enough to repair damaged lives. Because of this, taking microinsurance is a viable and recommendable alternative to be able to respond to these situations.  Microinsurance gives disaster survivors a chance to make themselves part of the reconstruction process, empowering them and reassuring that they take ownership of the future they wish to outline.