Climate risk insurance is an instrument of financial risk transfer that provides security against risks arising from extreme weather events that are increasing in both frequency and intensity as a direct consequence of climate change. The mechanism can offer governments, institutions, enterprises and individuals insurance against loss of life, livelihood and assets caused by extreme weather events.
Even with the ambitious mitigation of greenhouse gas emissions, states and societies need to prepare for the unavoidable effects of extreme weather events, exacerbated by climate change. Adaptation and disaster risk reduction can reduce but not eliminate negative impacts. Poor and vulnerable people in developing countries will be disproportionally affected, especially as they have fewer capabilities to cope and to adapt.
Innovative solutions of risk transfer, such as climate risk insurance, help to prepare for these risks. Insurance is not a stand-alone measure but is most effective in combination with adaptation and disaster risk management, in order to avoid negative impacts as far as possible in the first place.
Climate risk insurance protects people, enterprises and states from the adverse effects of climate-related extreme weather events such as droughts, floods and tropical cyclones and reduces the burden, as risks are spread across many shoulders even before potential damage occurs.
Climate risk insurance allows for rapid emergency assistance and reconstruction, as it can very quickly disburse cash to the insured party, for example to a government, in the aftermath of extreme weather events. This saves lives, protects livelihoods and assets and safeguards development gains.
Climate risk insurance instruments help to close a global equity gap. When an insured event occurs, the provision of assistance is no longer an act of charity but puts the people affected in the driver’s seat.
Background and mandate of InsuResilience
Between 1980 and 2015, more than 60% of the people who lost their lives as a result of climate-related extreme weather events had an income of less than USD 3 per day (Munich Re 2016). The effects of extreme weather events force some 26 million people into poverty every year (Hallegatte et al. 2017). Although absolute economic losses are significantly higher in high-income countries, they only account for 0.2% of GDP, as compared to 5% in low income countries (UNISDR 2015).
To close this protection gap, the G7 countries – Germany, France, Italy, Japan, Canada, the UK and the United States – launched the InsuResilience initiative for climate risk insurance at their summit in Elmau, Germany.
The initiative aims to offer insurance against climate risks to an additional 400 million poor and vulnerable people in developing countries by 2020. At the start of the initiative, only around 100 million poor and vulnerable people in Africa, Asia and Latin America were insured against climate-related risks.
At the climate negotiations in Paris in 2015 (COP21), the G7 partners made a commitment to provide USD 420 million in funding for InsuResilience as a first step. One year later, at COP22 in Marrakesh, two new partners joined the initiative: the European Union and the Netherlands. Together, the InsuResilience partners confirmed their commitment and increased their financial contributions for InsuResilience to USD 550 million.
In August 2016, the InsuResilience Secretariat was established in Bonn, Germany, as a support unit for the multi-stakeholder initiative. It is hosted by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) on behalf of the German Federal Ministry for Economic Cooperation and Development.
The Secretariat supports the development of pro-poor and demand-led climate risk insurance solutions in developing countries and enhances the visibility of the initiative. It fosters communication and cooperation among all the relevant actors of the InsuResilience initiative, facilitates knowledge management of the initiative and ensures progress and target achievement. The Secretariat supports the initiative in all tasks and serves all stakeholders equally – donors and partner countries as well as actors from politics, the insurance sector, civil society and academia across the globe.
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The InsuResilience initiative has a unique focus on providing climate risk insurance for poor and vulnerable people in developing countries. Extreme weather events disproportionally harm the poorest: in proportion to income, poor people lose more assets than non-poor, while possessing fewer resources and capacities to cope. Therefore, they are at high risk of falling back into or being trapped in poverty in the aftermath of extreme weather events. Climate risk insurance can help them to escape this vicious cycle of poverty. It helps people to reduce their vulnerability and better manage their resources, as they can focus on useful activities rather than having to engage in risk-minimizing activities.
This safeguards the livelihoods of many people who are at risk from the adverse effects of climate change.
Based on a study by the Munich Climate Insurance Initiative (MCII), the target group of the InsuResilience initiative is defined as follows:
1. Extremely poor: people living on less than 1.9 USD PPP / day
2. Moderately poor: people living on 1.9 to 3.1 USD PPP / day
3. Vulnerable: people living on 3.1 to 15 USD PPP / day
Monitoring & evaluation framework
Within the InsuResilience monitoring and evaluation (M&E) framework, climate risk insurance schemes that are supported by the initiative have to be monitored in respect of their contribution to the goal of the InsuResilience initiative. The M&E framework intends to establish a globally accepted quality-based approach for the monitoring of existing and new InsuResilience schemes.
The monitoring and reporting system is currently being developed with the primary goal of tracking the number of poor and vulnerable people with insurance coverage in a transparent and accountable manner. The data collected will be analysed and reported to the donor states and the public.
The core element of the reporting is to reveal and make transparent how data and information are collected, assessed and used to calculate the beneficiaries of each scheme or project. This will also enable, in a next step, schemes to be measured with regard to their effectiveness and impact, not only in quantitative terms (tracking the numbers) but also with regard to their impact on strengthening resilience.
In 2017, a first survey will collect relevant information and data from existing InsuResilience programmes and projects. The first results of this evaluation are expected by November 2017. Reporting should take place at minimum on an annual basis.