The Microinsurance Network continues to support the Climate Change Agreement
Two years after the Paris Agreement on Climate Change, ratified by 153 parties to the UN Framework Convention on Climate Change (UNFCCC), the Microinsurance Network would like to reaffirm its commitment to the adaptation and mitigation of the effects of climate change through the work of its diverse membership.
President Trump’s announcement in June 2017 that the United States is withdrawing from the Agreement has been widely condemned. Further consternation has been caused by the decision to close the US Office of International Climate and Technology, which provided technical advice to other countries seeking to reduce greenhouse gas emissions and develop clean energy technology.
Climate change is one of the biggest challenges that confronts us today. It has far-reaching adverse economic and social impacts — many of which are already visible — and these affect developing countries disproportionately, making them more vulnerable than the industrialised and emerging economies considered to be major polluters.
Ensuring food security by insuring agricultural production risks
Many of the members of the Microinsurance Network offer agricultural insurance to smallholder farmers in Africa, Asia and Latin America, who produce 70% percent of all food consumed in developing countries. These smallholder farmers are highly exposed to the negative impacts of extreme weather events. While some insurers offer indemnity-based crop insurance, most are now exploring index-based insurance products where pay-outs depend on the performance of a transparent, easy-to measure index linked to factors such as weather data or average area yields. While this innovative type of insurance helps to reduce administrative and transaction costs, it also introduces new challenges such as basis risk, which is the difference between the performance of the index and the damage the policyholder has actually suffered.
Insuring against natural disasters
Natural disasters affect everybody, but low-income households suffer the most. Several members of the Microinsurance Network are implementing disaster risk reduction programmes in vulnerable countries, including the Philippines, Indonesia, Vietnam and Cambodia. These programmes help to equip governments with practical tools, such as hazard vulnerability assessments, contingency planning and disaster risk reduction and management strategy formulation. In addition to providing risk transfer tools to the end clients, several Microinsurance Network members implement mechanisms to reduce vulnerability to climate disaster risk in dealing with clients, local governments and SMEs.
If we are to succeed in the transition to a low-carbon world, private sector climate financing must be scaled up to complement the substantial investments to be made by governments. In 2015, the G7 launched a Climate Risk Insurance Initiative called “InsuResilience” which aims to provide 400 million people with climate risk insurance by 2020. To date, public and private entities have pledged US$550 million to enable climate risk insurance coverage for at least 180 million people. The objective of the Initiative is to stimulate the creation of effective climate risk insurance markets, learn from and build on already existing sovereign pools such as the African Risk Capacity (ARC) and the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and promote the smart use of insurance-related schemes for people and risk-prone assets in developing countries.