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World Bank to Support Development of Catastrophe Insurance Market Infrastructure in Kazakhstan

April 8, 2016

WASHINGTON, April 8, 2016 – The World Bank Board of Directors today approved  a US$ 5 million grant by the Global Environment Facility for providing technical support to the Government of Kazakhstan and the local insurance market to help address the effects of climate change on the national economy through the development of an advanced insurance market infrastructure.

As the analysis of disaster data shows, Kazakhstan is vulnerable to natural hazards including floods, mudflows, landslides, steppe winds, and earthquakes. The climate change is expected to exacerbate hydro-meteorological disasters, adversely affecting homeowners, small and medium business (SMEs), and farmers. Agriculture plays a prominent role in the national economy and makes the country highly vulnerable to the risk of climate change. In the plains, spring floods fed by rain and snowmelt occur and mountainous regions suffer mudflows triggered by rainfall or breaches of glacial lakes. About 13% of the country’s area containing over 26% of its population is prone to mudflows. Kazakhstan also experiences devastating earthquakes which tend to occur every 80 to 100 years.

To address the impact of climate change and other natural disasters on the national economy Kazakhstan is currently introducing a national program of compulsory catastrophe insurance for homeowners and SMEs. To this effect, the World Bank is providing technical assistance to the Government on the preparation of a Law on Compulsory Catastrophe Insurance. Implemented in parallel, the Project is expected to focus on the enactment of the law by developing essential insurance market infrastructure in support of catastrophe insurance products to be offered by local insurers. The insurance products will cover the risks of flood, land slide, and earthquake. In addition, the project will support government efforts in reforming the current agricultural insurance program with the view to improving its financial sustainability, and level of penetration in the agriculture sector.  New climate risk insurance products to be designed under the project will help farmers to deal with adverse effects of extreme weather events in the sector.

Over the last few years, the government fiscal space to cope with unpredicted large outlays caused by natural disasters has been severely reduced to the falling global commodity prices, and worsening economic situation in the region. For this reason, one of the basic tenets of disaster risk mitigation is the transfer of financial risk to the private insurance markets. Catastrophe risk insurance is a means of transferring the financial and fiscal risk of disasters from government to the private sector. Not only does it protect homeowners, SMEs and the national economy at large from natural disasters, but it also enables more effective targeting of government assistance following such catastrophic events.

Relying on the global experience in designing national and regional catastrophe and weather-risk insurance programs, in 2011, the World Bank jointly with the Swiss Secretariat for Economic Affairs (SECO) and the Global Environmental Facility (GEF) launched a catastrophe and weather risk reinsurance program known as the Southeast Europe Catastrophe Insurance Facility (SEE CRIF). In cooperation with country stakeholders, SEE CRIF has already invested in the development of catastrophe insurance market infrastructures for Albania, Serbia, and Macedonia, where consumers can now buy innovative catastrophe products. With the help of the newly approved Bank similar catastrophe insurance products will be soon available in Kazakhstan.

In Kazakhstan, SEE CRIF aims to support mass sales of compulsory and non-compulsory catastrophe insurance products through local insurance companies. The Project is expected to assist Kazakhstan with the launch of affordable, innovative catastrophe insurance products covering the risks of weather extremes thus increasing access to sound catastrophe and weather risk insurance products for millions of people in Kazakhstan and reducing economic vulnerability both at local and national levels.

The planned activities will ensure the engagement of major stakeholders in Kazakhstan, including the Ministry of Economic Development and Planning, the National Bank, and the Insurance Association. Public awareness of climate change and the benefits of catastrophe and weather risk insurance will be raised through information campaigns and public discussion of the new Law on Compulsory Catastrophe Insurance.

The Project will be implemented by the Europa Reinsurance Facility (Europa Re), a specialized catastrophe reinsurance company established under the Swiss law with extensive technical support from the World Bank, currently owned by the governments of Albania, FYR of Macedonia and Serbia. Since 2012, Europa Re has been successfully acting as the project implementation agency for the US$ 5.5 million GEF and US$ 4.5 million SECO grants, which financed the development of a catastrophe insurance market infrastructure in Southeastern Europe.

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