CATASTROPHE INSURANCE FOR POST-DISASTER REHABILITATION AND RECONSTRUCTION FINANCING IN INDONESIA (Cost-Benefit Analysis of Indonesian Earthquake Insurance 2004-2017)

• Main Author: Eko Putra, Hengki
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/37347
• Institution: Institut Teknologi Bandung

Indonesia is one of the country that exposed to high natural disasters risk. Its position at the boundary of the 3 world plates (Eurasian plate, Indo-Australian plate and Pacific plate) characterized as an area with active seismicity and volcanism. Indonesia is exposed to earthquakes, tsunamis and volcanic eruptions that can cause severe economic losses. For instance, the 2004 Aceh Earthquake and Tsunami caused a loss of Rp. 41.4 trillion. These losses caused a deficit in Indonesia's financial budget moreover the disaster management budget is also very limiter. Generally, the government covers this budget deficit by reallocating budget or through loans. It can disrupt the development process or a long-term financial burden. Therefore, the Indonesian government must find another source of disaster management funding, one option that can be considered is risk transfer instruments, such as catastrophe insurance and catastrophe bonds. This study examines the potential of earthquake insurance claim payments as a source of funding for post-disaster house reconstruction incentive program in Indonesia based on cost-benefit analysis. Cost was defined as insurance premiums that must be paid, and benefits are the potential claims that will be received for each disaster occurred. Cost and benefits are analyzed for earthquake risk with the object of analysis is protection of housing from 2004-2017. Earthquake insurance has a great potential to be applied in disaster risk management in Indonesia, which is characterized by a positive cost-benefit ratio. The cost is Rp. 18,6 trillion while the value of the benefits obtained is Rp. 22,15 trillion. The cost-benefit ratio is 1: 1,19.