Insurance as a Response to Loss and Damage?

This chapter asks whether insurance instruments, especially micro-insurance and regional insurance pools, can serve as a risk-reducing and equitable compensatory response to climate-attributed losses and damages from climate extremes occurring in developing countries, and consequently if insurance instruments can serve the preventative and curative targets of the Warsaw International Mechanism for Loss and Damage (WIM). The discussion emphasises the substantial benefits of both micro-insurance programs and regional insurance pools, and at the same time details their significant costs. Beyond costs and benefits, a main message is that if no significant intervention is undertaken in their design and implementation, market-based insurance mechanisms will likely fall short of fully meeting WIM aspirations of loss reduction and equitable compensation. Interventions can include subsidies and other types of support that make insurance affordable to poor clients; interventions can also enable public-private arrangements that genuinely catalyse risk reduction and adaptation. Many such interventions are already in place, and the chapter highlights two potential success stories for insurance instruments serving the most vulnerable: the African R4 micro-insurance program and the African Risk Capacity (ARC) regional insurance pool. While support to these and other insurance programs continues to be framed as humanitarian aid based on the principle of solidarity, discussions on the G7 initiative to insure vulnerable households, as well as on ARC’s initiative to link international payments to climate risks, raise the question whether the narrative will evolve from solidarity to responsibility based on the principle of developed country accountability.

[1]  R. Mechler,et al.  The Risk and Policy Space for Loss and Damage: Integrating Notions of Distributive and Compensatory Justice with Comprehensive Climate Risk Management , 2018, Loss and Damage from Climate Change.

[2]  David Crichton,et al.  Role of Insurance in Reducing Flood Risk , 2008 .

[3]  R. Schwarze,et al.  Economies of Integrated Risk Management? An Empirical Analysis of the Swiss Public Insurance Approach to Natural Hazard Prevention , 2017 .

[4]  K. Warner,et al.  Exploring and Managing Adaptation Frontiers with Climate Risk Insurance , 2018, Loss and Damage from Climate Change.

[5]  Julie Rozenberg,et al.  Unbreakable: Building the Resilience of the Poor in the Face of Natural Disasters , 2016 .

[6]  T. Ungern-Sternberg,et al.  The limits of competition: Housing insurance in Switzerland , 1995 .

[7]  Richard S. J. Tol,et al.  Key Economic Sectors and Services , 2014 .

[9]  Richard G. Jones,et al.  Attribution: How Is It Relevant for Loss and Damage Policy and Practice? , 2018, Loss and Damage from Climate Change.

[10]  H. Kunreuther.  Mitigating disaster losses through insurance , 1996 .

[11]  S. Surminski,et al.  Flood insurance in England – an assessment of the current and newly proposed insurance scheme in the context of rising flood risk , 2017 .

[12]  Howard C. Kunreuther,et al.  of Pennsylvania, co-director of the Risk Management and Decision Processes Center and co-author of Learning from Catastrophes: Strategies for Reaction and Response and At War with the Weather: Managing Large Scale Risks in a New Era of Catastrophes. , 2009 .

[13]  Daniel Clarke,et al.  Cost-Benefit Analysis of the African Risk Capacity Facility , 2013 .

[14]  S. Huq,et al.  Evidence from the frontlines of climate change: loss and damage to communities despite coping and adapation , 2012 .

[15]  W. Botzen,et al.  Managing Extreme Climate Change Risks through Insurance: Conclusions , 2013 .

[16]  Goetz von Peter,et al.  Unmitigated Disasters? New Evidence on the Macroeconomic Cost of Natural Catastrophes , 2012 .

[17]  Swenja Surminski,et al.  How insurance can support climate resilience , 2016 .

[18]  S. Surminski.  The Role of Insurance in Reducing Direct Risk - The Case of Flood Insurance , 2014 .

[19]  Laurens M. Bouwer,et al.  Observed and Projected Impacts from Extreme Weather Events: Implications for Loss and Damage , 2018, Loss and Damage from Climate Change.

[20]  Stefan Hochrainer-Stigler,et al.  The European Union Solidarity Fund: an assessment of its recent reforms , 2017, Mitigation and Adaptation Strategies for Global Change.

[21]  M. Mace,et al.  Loss, Damage and Responsibility after COP21: All Options Open for the Paris Agreement , 2016 .

[22]  John D. Pollner,et al.  Managing Catastrophic Disaster Risks Using Alternative Risk Financing and Pooled Insurance Structures , 2001 .

[23]  Maxine Burkett,et al.  Loss and Damage , 2014 .

[24]  L. Bouwer,et al.  Managing unnatural disaster risk from climate extremes , 2014 .

[25]  Emmett J. Vaughan.  Fundamentals of Risk and Insurance , 1982 .

[26]  E. Lees.  Responsibility and liability for climate loss and damage after Paris , 2017 .

[27]  S. Dercon,et al.  Dull Disasters? How Planning Ahead Will Make a Difference , 2016 .

[28]  G. Pflug,et al.  Sovereign financial disaster risk management: The case of Mexico , 2007 .

[29]  Lukas H. Meyer,et al.  The Ethical Challenges in the Context of Climate Loss and Damage , 2018, Loss and Damage from Climate Change.

[30]  L. Greene.  EHPnet: United Nations Framework Convention on Climate Change , 2000, Environmental Health Perspectives.

[31]  R. Heltberg,et al.  Addressing Human Vulnerability to Climate Change: Toward a 'No Regrets' Approach , 2008 .

[32]  Christopher B. Field,et al.  Economics of Adaptation , 2014 .

[33]  L. Ikamari.  Global knowledge partnership on migration and development (KNOMAD), world bank group global experts meeting, Geneva, 10-12 December 2102 [no paper solicited , 2012 .

[34]  Ian McCallum,et al.  Science for Loss and Damage. Findings and Propositions , 2018, Loss and Damage from Climate Change.

[35]  D. Wilkie.  Mutuality and solidarity: assessing risks and sharing losses. , 1997, Philosophical transactions of the Royal Society of London. Series B, Biological sciences.

[36]  R. Mechler,et al.  Identifying the policy space for climate loss and damage , 2016, Science.

[37]  F. Simlinger,et al.  Legal Responses to Climate Change Induced Loss and Damage , 2018, Loss and Damage from Climate Change.