Parametric insurance applicability in Zimbabwe: a disaster risk management perspective from selected practicing companies

  • Received September 8, 2019;
    Accepted November 15, 2019;
    Published November 27, 2019
  • Author(s)
  • DOI
  • Article Info
    Volume 10 2019, Issue #1, pp. 36-48
  • Cited by
    5 articles

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License

This study seeks to explore the possibility of adopting parametric insurance to manage disaster risk in Zimbabwe. The background of the research is caused by recurrent natural disasters and the failure of the government to offer disaster relief after such events. The main objective of the research is to come up with the success factors of adopting parametric insurance to manage disaster risk and its effectiveness in African countries. The study population consists of 32 employees from seven reinsurance companies and 5 from a regulatory body. Self-administered questionnaires and interviews were used to collect the data. The study assumes that Zimbabwe does not have sufficient infrastructure to establish parametric insurance, and the lack of financial capacity is another major problem. 61% of respondents confirmed that they were underwriting natural disasters and the remaining 39% were not. The natural disasters that are being covered in insurance market and under which insurance products are used were at 61%. About 39% of the reinsurance companies that are not underwriting natural disasters cited the major reasons why they do not. Most of respondents confirmed that there was no support from the government to underwrite catastrophic risks. 57% of the respondents indicated that it is not possible to adopt parametric insurance, whilst 43% of the respondents agreed that it was practical. Recommendations are made for the government and insurance providers, which include use of catastrophe bonds, government incentives and support, the creation of a clearing house and the involvement of international organizations and developing countries in adopting parametric insurance.

view full abstract hide full abstract
    • Figure 1. Underwriting of natural disasters in Zimbabwe
    • Figure 2. Strategies used to manage catastrophic portfolios
    • Figure 3. Government support to reinsurance companies to underwrite catastrophic risks
    • Figure 4. Effectiveness of government’s disaster response to natural disasters
    • Figure 5. Reinsurers that considered adopting parametric insurance to cover disaster risk
    • Figure 6. Natural disasters that reinsurers would prefer to cover if the government were to take parametric insurance
    • Figure 7. Practicability of adopting parametric insurance in Zimbabwe
    • Table 1. Response rate
    • Table 2. Insurance products covering catastrophic natural disasters