Parametric insurance is poised to expand in Fiji, with the signing of a new partnership between the Reserve Bank of Fiji (RBF), SUN Insurance, Tower Insurance and the InsuResilience Solutions Fund (ISF or the Fund). The Fund is a global programme that leverages climate and disaster risk finance and insurance solutions to enable quick and reliable disaster response in developing and emerging countries. Together, the RBF and the Fund will work with local insurers, Tower Insurance and SUN Insurance, to make parametric insurance more affordable for low-and-middle-income households and micro, small and medium businesses (MSMEs).

The Central Bank’s support for the development and scaling of such a novel product reinforces it as a trailblazer when it comes to financial inclusion in the Pacific. As a long-standing partner of the UN Capital Development Fund (UNCDF) and UN Development Programme (UNDP), the RBF’s support has enabled the passage of several important financial inclusion initiatives in Fiji to improve the lives of everyday Fijians. The gatekeeper role requires the bank to carefully balance its regulatory responsibilities without creating excessive barriers to innovation—a task the RBF executes astutely. 

At the 2024 Alliance for Financial Inclusion (AFI) Global Policy Forum Awards, the bank won the prestigious Nestor Espenilla Jr. Award in recognition of the role it has played in financial inclusion and innovation. The RBF also hosted AFI’s 27th Consumer Empowerment and Market Conduct (CEMC) and 10th Inclusive Green Finance Working Group meetings in Fiji this March, where central bankers from Asia and the Pacific, Latin America, Africa, and the Middle East met to discuss solutions for shared challenges.

Through the partnership with ISF, the RBF is setting another groundbreaking precedent by becoming the first central bank in the Pacific, and possibly globally, to take ownership of the national implementation of parametric micro-insurance products in Fiji, and for also establishing a standalone unit to oversee the expansion of the same. This is a transformative step that highlights a shift in how financial institutions perceive and respond to climate risks. The RBF, ISF and SUN and Tower Insurance will work together over two years to expand parametric micro-insurance in Fiji by supporting the development of tailored products, enhancing local capacities, and building a sustainable insurance market.

Why Parametric insurance?

The Pacific region faces some of the highest risks from climate-induced disasters globally. Annual economic losses from disasters in Pacific Small Island Developing States (PSIDS) are over twice as high as previously estimated, reaching US$1.075 billion, or nearly 5 percent of their combined GDP (UNESCAP, 2020). Disasters in SIDS affect a larger share of the population: on average, 18 percent of the total population is affected after each disaster in SIDS, compared to 6 percent in non-SIDS countries (FAO, 2017)

In response, the Pacific Insurance and Climate Adaptation Programme (PICAP), jointly implemented by UNCDF, UNDP and the UN University Institute for Environment and Human Security, was designed to improve the financial preparedness and resilience of vulnerable Pacific communities against the impacts of climate change. PICAP focuses on developing and promoting affordable and accessible climate risk micro and meso insurance products, such as parametric insurance, to help these communities and businesses manage the financial risks associated with extreme weather events. The programme works closely with local stakeholders, including governments, insurance companies, and civil society organizations to build capacity, raise awareness, and co-create innovative solutions. Since its launch in Fiji in December 2020, PICAP has expanded to Tonga, Vanuatu, Samoa, Papua New Guinea, Solomon Islands, Kiribati and Tuvalu.

PICAP identified parametric micro-insurance as a key financing instrument to be deployed for reducing vulnerability and fostering resilience. This approach has been validated after the quick claim payouts – digitally enabled – to over 1,700 beneficiaries in March/April 2024 following heavy rainfall in several parts of Fiji. The RBF and UNCDF aim to enhance the reach and impact of these insurance products, ensuring that smallholder farmers, fishers, and micro, small, and medium enterprises (MSMEs) are protected from the economic fallout of extreme weather events.

RBF: Leading in the Pacific

Key activities funded by the ISF grant include developing new climate risk insurance products based on research and data from the ground, building the capacity of end-clients and local insurers and developing digital tools for better data management. These efforts will ensure that parametric insurance becomes an accessible, practical, widely understood, and trusted solution for managing climate risks. In its role as both the regulator and demand-side partner, the RBF is well-positioned to drive the adoption and expansion of parametric micro and meso insurance. The ISF co-funded project, with the RBF as the lead institution, will build on the market ecosystem developed over the last three years by UNCDF and UNDP. Besides the two local insurers, several aggregators, including agriculture and fisheries cooperatives, the Fiji Development Bank, microfinance service providers, local InsurTech providers, government departments and other partners are part of the ecosystem already capacitated to deliver solutions at the last mile. 

Partnerships and Ecosystems 

The collaboration between UNCDF, UNDP and the RBF is a cornerstone of PICAP's sustainability strategy. By empowering the RBF to lead on this front through technical assistance, UNCDF and UNDP are helping to build a robust and sustainable insurance ecosystem led by national institutions and the private sector. Over the next 18-24 months, UNCDF and UNDP will continue to provide required technical assistance to the RBF and other partners to ensure that the investments made in market development are transitioned successfully to a national scale. This model, if successful, will be a suitable case for replication in other Pacific SIDS where implementation is underway, and it is a viable exit strategy for UNCDF. 

RBF's Pioneering Role

The RBF's commitment to enhancing parametric micro-insurance signifies a broader understanding of the role that financial institutions, especially central banks, can play in managing climate risks, aligned with their overall mandate of “Leading Fiji to Economic Success” besides protecting its financial systems. 

By stepping up, the RBF is sending a powerful message: that climate resilience is not just an environmental concern but a core component of economic stability and sustainable development. This leadership is expected to inspire other Pacific nations to explore similar pathways, fostering a spirit of innovation and collaboration across the region.