Inclusive insurance is important in addressing the effects of climate change as it affects agriculture, small and medium scale enterprises that are exposed to risks in the environment
According to experts from Micro insurance facility, risk management and insurance are vital for building the resilience that underpins the sustainable development agenda. According to them, inclusive insurance has the potential to be a significant weapon in the fight against climate change, which is one of the main drivers of both daily impacts and major disasters.
Inclusive insurance can also play a crucial role in national risk reduction strategies – of course, it is not the only tool to increase climate disaster risk resilience, but it is an important one which does not always get the recognition it deserves.
Some insurers are already offering agricultural insurance and disaster risk management (DRR) to smallholder farmers in developing countries who are highly exposed to climate change. These include index-based crop and livestock insurance, and practical DRR programmes such as hazard vulnerability assessments and contingency planning. Some are also partners in the G7’s InsuResilience initiative, which aims to provide 400 million people with climate risk insurance by 2020, and the InsuResilience Investment Fund, which has so far benefitted more than 17.5 million people worldwide.
Investment for climate impact mitigation, adaptation and resilience is also key. With the insurance industry managing around a third of the world’s investment capital, approximately $30 trillion, it has pledged to double its green and climate-smart investments to at least $84 billion, confirming its significant role in supporting low-carbon technologies and climate-resilient tools and mechanisms.
Available data show it’s the poorest and most vulnerable who suffer most. In the decade to 2014, 89 percent of storm-related fatalities were in lower-income countries. A World Bank report finds that climate change threatens to push an additional 100 million people into extreme poverty by 2030.
According to the OECD, economic impacts of climate change may cause a reduction of up to 3.3 percent in global GDP per year by 2020. Only half of the $160 billion global losses from ‘natural’ catastrophes in 2018 were insured. In the developing world, only 10 percent of climate-related risks are covered. And it’s not just the immediate impacts of an extreme weather event or catastrophic crop failure which need insurance cover. Longer term, hidden risks from climate change include food insecurity, malnutrition, illness, job losses and poor economic growth.
No wonder that climate change is – forgive the pun – a hot topic for the insurance industry. That’s why the Microinsurance Network (MiN), in partnership with the International Association of Insurance Supervisors (IAIS) and Access to Insurance Initiative (A2ii), is organising three Consultative Forums in 2019 devoted to finding insurance solutions to help bridge the protection gap. The Forums will explore challenges on the supply side for developing and emerging economies such as transaction costs, lack of suitable products, data limitations and regulatory barriers. On the demand side, affordability, awareness and trust are some of the biggest obstacles. There is a huge need to build large-scale, stable and safe insurance markets with policyholder protection in place. As the 2018 State of Microinsurance report notes, “Besides acting as a social protection mechanism, insurance can also play a long-term transformative role that helps to lift people out of poverty, and so everyone in the insurance sector has a role to play in helping to bridge the protection gap.
