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No. 156/11 | Berlin, 05.12.2011

New insurance solutions to protect states particularly vulnerable to climate change

Germany’s Federal Ministry for the Environment has approved funding for a unique project that will develop insurance solutions in Caribbean states particularly vulnerable to climate change. The objective is to protect small farmers and day labourers from losing their livelihoods due to the impact of a hurricane or a flood by offering microinsurance and other risk transfer solutions linked with disaster risk reduction and risk management.

Developing countries located in disaster-prone regions - such as the Caribbean - are particularly hard hit by the consequences of global climate change, making it even more difficult for vulnerable people in those countries to adapt to the increasing risk. According to estimates from an Economics of Climate Adaptation study, losses caused by weather-related natural catastrophes already account for up to 6% of the annual gross national product in the five target countries - a figure that could increase by up to three percentage points by 2030, with hurricanes having the greatest loss potential in the region.

Weather risk insurance-related solutions - among them microinsurances - can play a key role in providing swift and unbureaucratic recovery aid following major losses caused by such natural catastrophes, and thus safeguard livelihoods. However, these approaches have so far experienced difficulties in reaching out to a larger proportion of the vulnerable population due to a shortage of information on local weather risks, insufficient risk management and risk transfer experience on the part of the initiators, and the lack of a clearly viable reinsurance concept.

The project, funded to the tune of €2m for a period of three years, aims to overcome these obstacles by bringing Munich Re, the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and specialist microinsurance broker MicroEnsure together under the umbrella of the Munich Climate Insurance Initiative (MCII). In the next three years, up to three different insurance products will be developed and marketed in at least three countries across the region, and their acceptability to and effect on the target group put to the test. A new aspect of these products will be a close association with risk-reduction measures.

Launched by Munich Re together with representatives of international finance institutions, scientific institutes and non-governmental organisations, and hosted at the United Nations University Institute for Environment and Human Security (UNU-EHS), MCII has been involved in the United Nations climate negotiations process since 2005. At the World Climate Conference in Poznan (COP-14) in 2008, MCII tabled a detailed proposal for a risk management module linking insurance solutions to disaster risk reduction to help developing countries adapt to climate change. This project is a first operative step of MCII to such an integral risk management system for developing countries. In 2009 at COP-15, a number of key items from the proposal were included in the Copenhagen Accord, carried forward into the Cancun Agreement in 2010 (COP-16) and even reflected in the Work Programme on Loss and Damage under the Subsidiary Body for Implementation (SBI) of the UNFCCC.

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