Extreme weather events are more frequent and severe. They are exacerbating poverty and intensifying disaster risks for communities around the world. Climate and disaster risk insurance is one solution to help people better deal with risk related to climate change. However, according to Munich Re, only half of the global losses resulting from catastrophes in 2018 were insured. The situation is even worse when looking at just emerging and developing countries – there are regions where the gap exceeds 90%.
In 2019, the Access to Insurance Initiative (A2ii), the Microinsurance Network (MiN) and the International Association of Insurance Supervisors (IAIS) jointly with InsuResilience Global Partnership and local partners organised three Consultative Forums to address these two key questions: what are the roles and responsibilities of each stakeholder to reduce the protection gap in climate risk insurance? What are the urgent steps that they have to adopt to make this happen?
In total, around 190 insurance regulators and supervisors, policymakers, insurers, reinsurers, brokers, climate change experts, aggregators, and international development professionals from across the globe put their heads together in three dialogue platforms in Panama, South Africa and Bangladesh.
During the events, both industry as well as public sector representatives presented current approaches and challenges they face in implementing climate risk insurance solutions. The insurance sector plays a crucial role in protecting and mitigating the impact of climate change. However, insurance is only one building block of a comprehensive disaster risk management framework. Considering this, the World Food Program’s R4 program for example is an integrated microinsurance approach including not only insurance for assets but also risk reduction and risk transfer mechanisms. Microinsurance providers like CARD Pioneer from the Philippines, La Positiva from Peru or PROFIN Bolivia offer different products to help protect individuals against climate risks. Innovation and the use of technology make these products more affordable and accessible. Pula for example bundles crop insurance with the inputs farmers already use , such as seed and fertilizer.
Such products do not only contribute to longer-term resilience building at the individual household level, but also strengthens independence from international aid.
On the sovereign level, the African Risk Capacity (ARC) and the Caribbean Catastrophe Risk Insurance Facility (CCRIF) support governments to be able to mitigate the financial effects of disasters and to rebuild critical infrastructure and sectors or provide humanitarian assistance.
Besides the private sector, the public sector can contribute to more resilient societies by ensuring political support and recognising the important role governments can play. This does not only include the provision of subsidies. In Bangladesh for example, as part of a recent paradigm shift from relief to preparedness, the current disaster risk management policy documents are being revised to ensure they explicitly include insurance. Some risks individuals face in the context of climate change may also call for governments to consider more mandatory insurance products to be included in regulatory frameworks. Insurance supervisors can contribute by reducing disproportionate regulatory barriers and encourage new development of new products that could help people to protect themselves against catastrophic events in a timely manner. In addition, they can educate the public and share relevant data and information with other stakeholders on climate risk insurance.
Key messages:
- A comprehensive risk management strategy is needed to better deal with risk related to climate change and disasters. It must include measures for risk reduction, prevention and mitigation. Insurance is only one piece of the puzzle, but a fundamental one.
- Climate risk is an extraordinary risk that cannot be addressed by either the insurance industry or government alone; a joint approach between different countries is needed to tackle this important topic. Supervisors, policymakers, the private sector, donors and consumers – they all have to engage in active dialogue to design and implement tools to bridge the protection gap.
- While the industry has a role to play in developing products that are easily accessible, affordable and understandable for smallholder farmers, the insurance supervisor needs to make sure that regulations enable the growth of insurance to cover climate-related risks, rather than create any unnecessary barriers.
Find here the recordings and presentations from all three events.
For more information please contact Teresa Pelanda at Teresa.pelanda@a2ii.org.