Effectiveness of Insurance for Disaster Risk Reduction and Climate Change Adaptation: Challenges and Opportunities

The Asia-Pacific region is one of the most vulnerable regions to climate change impacts because millions of people in the region dwell in rural areas, are poor households and are dependent on agriculture and related sectors for their livelihoods. Addressing climate change impacts for these communities requires moving away from business-as-usual practices towards practices that have high net positive benefits in terms of disaster risk reduction (DRR) and climate change adaptation (CCA). Risk insurance has been advocated as a practice that has high potential to provide these benefits. However, the current insurance approaches are not achieving their expected potential due to a variety of factors that are embedded in the traditional notions of risk spreading, institutional imperfections and lack of innovation. The reported insurance benefits are largely hypothetical and there is a dearth of evidence for insurance benefits from actual community-based insurance initiatives. Measuring the DRR and CCA costs and benefits of various forms of insurance can help in identifying the most effective insurance approach and help put insurance among the basket of risk mitigation options suitable to the most vulnerable and ultra-poor people.