Climate change heightens need for disaster risk finance, insurance
Recent natural disasters across the world have raised concern on the need to prepare for impact of climate change with insurance for risk mitigation. While for many the extreme weather was no more than a mild inconvenience, for millions of small-scale farmers, their families and communities in vulnerable countries, climate change is already having a devastating impact. It is clear there is an urgent need for climate and disaster risk finance and insurance which can build resilience and help mitigate the worst effects, according a report on Insurance Impact Network.
According to the recently-formed InsuResilience Global Partnership, 26 million people are forced into poverty each year as a result of climate-related disasters. The Insurance Development Forum (IDF), launched two years ago, estimates that 70 percent of economic losses from natural hazards remain uninsured, and in middle- and low-income countries the uninsured proportion of economic losses often exceeds 90 percent.
None of this is new to the MiN, whose members have been collaborating to ensure greater resilience through insurance cover for more than ten years. Working through a range of partnerships such as the UN Environment’s Principles for Sustainable Insurance (PSI) initiative, the MiN aims to close the insurance protection gap and build resilience to shocks through truly inclusive insurance. Since joining forces a year ago, the MiN and UN-PSI have worked together to support the development and expansion of sustainable, socially inclusive insurance services.
Given the essential role that inclusive insurance can play in achieving the SDGs, it is small wonder that new organisations and partnerships are coming into play. It’s encouraging to see increasing collaboration between civil society, governments, UN agencies, insurance companies and regulators. Stephan Opitz of long-standing MiN member KfW Development Bank welcomes new initiatives “to develop comprehensive and complementary solutions for and with our partners from civil society and the private sector. Solutions to give quick support to people who need it most in situations that are threatening their livelihoods”
Some, however, caution against focusing too much on insurance as a silver bullet to tackling climate change and natural disasters. Inclusive risk management strategies such as mitigation and prevention, which go ‘beyond insurance’ are just as important, says Josh Ling, director of Financial Inclusion at Mercy Corps, another member of the MiN. “Savings are an important tool to provide a buffer to smaller shocks, and can play a complementary role to insurance products. Risk mitigation solutions must be considered first and should seek ways to avoid the climate exposure altogether.”
“There are many tools and strategies for confronting climate risks,” says Ling. “However, whilst all efforts should be made to reduce exposure to climate hazards and avoid the effects to the greatest extent possible; this rarely avoids the risk completely. Inclusive insurance plays an important role to ensure that vulnerable populations are not faced with the financial consequences of natural disasters.”
Modestus Anaesoronye