Climate vulnerable regions get insurance boost

Ecosystem adaptation model fits with the compensation instruments

June 11/ Bonn

By Aditya Ghosh

Bonn, June 11: Ecosystem based adaptation to climate change impacts has emerged as the most cost-effective method both for climate insurance schemes and developing resilience in communities to combat climate change.

For insurance to be successful, the model has to be a public private partnership. “We have learnt from the studies we have conducted around the world that it could be significant tool in helping communities adapt and be resilient. However, any scheme must be preceded by quantifying impacts of climate change for the region, introducing hard measures, planning for emergency responses,” said Andreas Spiegel, senior climate change advisor, Swiss RE, a global reinsurer of climate risks.

In a forum organized by UN Environment Programme (UNEP) during Bonn climate talks, experts from divergent fields of climate change unanimously accepted that ecosystem based adaptations proved most successful in helping vulnerable communities to adapt. “In our experience from the mountains of Nepal, a project currently jointly being carried out with UNEP and IUCN, ecosystem based adaptation has clear advantage over let’s say, community based adaptation,” said Edmund Barrow, head ecosystem management programme, IUCN.

In terms of insurance, which has emerged as a key instrument after Cancun Agreements when Alliance of Small Island Nations (AOSIS) successfully introduced the concepts of loss and damage in the negotiation text, the success depended heavily on partnerships between the public and private sectors.

Public sector should facilitate risk assessment and quantify risks, implement economically suitable adaptation measures, and then transfer the risks by linking them to private insurance sector. Distribution channel of insurance policies should link private and public sectors with the capital markets.

Climate related damages is already leading to serious economic implications and by 2020 local GDP losses, for example, will be to the tune of 2.1 per cent for the state of Maharashtra and 6 per cent for the state of Florida.

It was also possible to insure states. A similar model, Caribbean catastrophe risk insurance provides immediate liquidity to 16 participating CARICOM governments.
But the companies must not look at profit margins as their yardstick, said a climate negotiator from Bangladesh. “Th
ere has to be an element of corporate social responsibility as well. Models can be evolved case-by-case and in consultation with the governments,” he said.
Vulnerable countries such as Bangladesh must develop robust weather data provision services and map asset statistics about geographical distribution. Fund loss modeling agencies should then develop loss models correlating the weather data and asset losses per asset category. “This will then be a model for the private sectors to cover the risks,” said Spiegel.

Harita - Horn of Africa risk transfer for adaptation project
It is a parametric insurance scheme that brings together climate change risk mitigation and crop insurance for farmers and has been rolled out in five communities in Northern Ethiopia. Underwritten by a local company, and reinsured by a global reinsurer, it uses a rainfall index to trigger compensation for farmers growing the Ethiopian three staple grain crops in case of drought. It is unique, however, in allowing farmers to pay for their premiums through labour on projects that will mitigate the effect of climate change in their area, such as tree planting.

To turn the labour into monetary value, the scheme takes advantage of a national government “cash for work” programme, which enables it to reach the most vulnerable farmers. HARITA therefore integrates insurance with both risk reduction and credit provision. By allowing very vulnerable farmers to pay their premiums through risk-reducing labour, farmers benefit even when there is no payout because these risk reduction activities will help minimise vulnerability to drought and improve yields.

Lack of cash is the main reason that people do not participate in insurance schemes. Using this government national cash for work programme is a way to address this issue and to scale up the size of the programme. Cash-paying farmers also participate in the programme, advancing market development. The programme will roll out to the Tigray region in 2011.