Reports / Studies

The Political Economy of Premium Subsidies: Searching for better Impact and Design PRE-PRINT

This report is part of a broader study, commissioned by the
InsuResilience Global Partnership (IGP) and led by ODI. The study
aims to further global understanding on the uptake, size and value of
premium and capital support (PCS). It follows a call in the
InsuResilience Evidence Roadmap for follow-up work to explore the
macro-level factors that influence governments’ ‘willingness and
capacity’ to take out climate and disaster risk finance and insurance
(CDRFI), as well as the incentives that could be created to enable and
promote this. The study also builds on IGP’s previous conceptual work
on SMART PCS Principles (Töpper and Stadtmüller, 2022) and a
Monitoring and Evaluation (M&E) Guidance Note (IGP, 2021) which
examines the efficacy of PCS solutions to support insurance vehicles
and increase CDRFI uptake.

Risk pools offering climate-related insurance have been operating for
several years in Africa, the Caribbean and the Pacific. All have
benefitted from donor capitalisation and subsidisation of premiums in
the past. With growing climate risks across all these regions; limited
fiscal space in low- and middle-income countries; and an overburdened
humanitarian caseload, there is increasing interest in using
donor subsidies to grow the risk pools and offer more reliable, costeffective
and faster support to disaster-affected communities. This has
been the topic of extensive debate across humanitarian, development
and climate fora, including recent G7 Summits and COP26, as a way
of supporting loss and damage and contributing to a ‘Global Shield
against Climate Risks’. IGP has been leading work to identify global
standards and best practice in relation to premium subsidies, to help
inform a likely increase in this kind of donor support.

This report specifically investigates the political economy of countrylevel
decision-making in relation to sovereign-level CDRFI and related
premium and capital support. It also analyses the political economy of
donor decisions in relation to PCS. The report covers premium
subsidies, investigating how these can shape governments’ incentives
to purchase insurance as well as considering how the allocation and
design of subsidies can affect their impact and effectiveness.

Topic / Theme:

Risk Finance

Solutions / Instruments:

SMART Premium and Capital Support

Year:

2022

Author:

Z. Scott, V. Panwar, L. Weingärtner and E. Wilkinson

Pages:

37

Language:

English

Organization:

InsuResilience Global Partnership