Making Climate Risk Insurance Work for the Most Vulnerable: Seven Guiding Principles
The devastating impacts of climate change are already being felt around the globe, threatening sustainable development and resilience, impairing socioeconomic development and reinforcing cycles of poverty. Scientists are increasingly able to confidently attribute the increased intensity and frequency of extreme weather events – such as droughts, heatwaves, floods and cyclones – to human-induced climate change.
Worldwide, the poorest people bear a disproportionate burden of climate stress, yet they have contributed least to the drivers of climate change. In the face of predicted growing weather extremes and profound shifts in natural systems, the need is greater than ever to support the most vulnerable people and countries in finding effective strategies to manage risks and unexpected shocks and to build resilience to climate impacts.
This detailed policy report* illustrates how well-designed climate risk insurance – when applied in conjunction with other disaster risk management measures and strategies – can protect people against climate shocks by acting as a safety net and buffer shortly after an extreme weather event. It shows how, in this way, insurance can promote opportunities by helping to lessen financial repercussions of volatility and can stimulate transformation by incentivizing risk reduction behaviour and fostering a culture of prevention-focused risk management. In addition to seven guiding pro-poor principles for delivering climate risk insurance the report also provides recommendation for implementation, including the relevant actors and their roles.
The research and results feed into the G7-initiated InsuResilience Initiative, hosted by the GiZ in Bonn, Germany.
*Download the full text from the right-hand column. A brief overview of the methods, principles and conclusions are provided below.
Methods and Tools
The content presented in this policy report stems from a study in the context of the G7 InsuResilience Initiative. Applying a mix of qualitative scientific methods, researchers from Munich Climate Insurance Initiative (MCII) analyzed 18 different insurance schemes from around the world to better understand the ways in which climate risk insurance can increase resilience.
The analysis specifically looked for answers to the following five questions:
- Does the insurance product target poor and vulnerable people? If yes, did the insurance scheme have positive impacts on the resilience of the poor and vulnerable?
- What were important elements in the design of the insurance product that helped in reaching the poor and vulnerable?
- What were challenges in reaching the poor and vulnerable with the insurance product?
- What were success factors for the insurance product in reaching the poor and vulnerable?
- What kind of enabling environment supported the success of the product?
In addition to desk research, in-depth structured expert interviews were conducted. This led to a collection of views from relevant actors in the field on good practice, success factors and challenges in all aspects of climate risk insurance for the poor.
The analysed insurance schemes are relatively new interventions and only a few impact assessment evaluations have been performed to assess their viability. Therefore, the analyses for this Study are strongly derived from interviews with experts including project supporting or implementing partners, which may provide biased perspectives based on personal impressions. A list of research gaps was formulated accordingly, which needs to be addressed in future research.
Seven principles for benefiting the poor and vulnerable with climate risk insurance
Munich Climate Insurance Initiative’s seven principles for benefiting the poor and vulnerable with climate risk insurance are provided below. Associated recommendations for action are provided on page 6 and 7 of the full text. The principles can guide climate risk insurance schemes before and during operations and are a key component for establishing solidarity-oriented insurance schemes and responding to concerns of equity. Further elaboration of the principles and recommendations can be found in chapter 3 of the full text.
- Comprehensive Needs-Based Solutions. Solutions to protect the poor and vulnerable from extreme weather events must be tailored to local needs and conditions. It is imperative to embed insurance in comprehensive risk management strategies that improve resilience.
- Client Value.Providing reliable coverage that is valuable to the insured is crucial for the take-up of insurance products.
- Affordability. Measures to increase the affordability for poor and vulnerable people are paramount to the success of an insurance scheme and also important to satisfy equity concerns.
- Accessibility. Efficient and cost-effective delivery channels that are aligned with the local context are key for reaching scale.
- Participation, Transparency and Accountability. Successful insurance schemes are based on the inclusive, meaningful and accountable involvement of (potential) beneficiaries and other relevant local level stakeholders – in the design, implementation and review of insurance products – creating trust and providing a basis for local ownership and political buy-in.
- Sustainability. Safeguarding economic, social and ecological sustainability is crucial for the long-term success of insurance schemes.
- Enabling Environment. It is vital to actively build an enabling environment that accommodates and fosters pro-poor insurance solutions.
This research provides evidence that suggests that – if embedded into a wider risk management approach – climate risk insurance can contribute to improving key capacities that are imperative for reducing poverty and making poor and vulnerable people more resilient. These capacities include anticipatory, absorptive and adaptive capacities. This study showed that insurance can contribute to increasing these key capacities, both ex ante and ex post, in four ways:
- Protecting against climate shocks;
- Promoting growth by unlocking opportunities;
- Catalysing other elements in the process of comprehensive risk management that are necessary to build resilience;
- Spurring transformation by incentivizing risk reduction behaviour and fostering a culture of risk management.
The Munich Climate Insurance Initiative (MCII) is the leading innovation laboratory on climate change and insurance. It was launched over 10 years ago in response to the growing realization that insurance-related solutions can play a role in adaptation to climate change, as advocated in the Framework Convention and the Kyoto Protocol. MCII, through its unique set-up, provides a forum and gathering point for insurance-related expertise on climate change impacts. The Initiative brings together insurers, experts on climate change and adaptation, NGOs and researchers intent on finding effective and fair solutions to the risks posed by climate change, as well as sustainable approaches that create incentive structures for risk and poverty reduction. MCII is hosted by the United Nations University Institute for Environment and Human Security (UNU-EHS) in Bonn, Germany.
Schäfer, L., Waters, E. and Kreft, S. (2016) Making Climate Risk Insurance Work for the Most Vulnerable: Seven Guiding Principles. UNU-EHS Policy Report No.1. United Nations University, Institute for Environment and Human Security (UNU-EHS): Bonn, Germany.
- Peter Hoeppe, Geo Risks Research/Corporate Climate Centre, Munich Re
- Christoph Bals, Germanwatch
- Simone Ruiz-Vergote, Allianz Climate Solutions
- Thomas Loster, Munich Re Foundation
- Aaron Oxley, RESULTS UK
- Gaby Ramm, Independent microinsurance consultant
- Thomas Hirsch, Climate and Development Advice
- Isaac Anthony, CCRIF SPC
- Florent Baarsch, Climate Analytics
- Rupalee Ruchismita, Resilience Design and Research Labs
- Simon Young, African Risk Capacity
- Koko Warner, United Nations Framework Convention on Climate Change (UNFCCC)
- Ian Burton, Independent scholar and consultant / Emeritus Professor, University of Toronto