Building resilience to climate change through inclusive insurance

As much of Europe baked in the recent unprecedented heatwave, thoughts focused once more on climate change and its impacts. 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 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.”

Initiatives such as InsuResilience, IDF and UN-PSI - as well, of course, as the continuing work of the MiN itself - are proof that the world is waking up to the need for effective, affordable inclusive insurance to build resilience. The first African conference of UN-PSI took place earlier this year, and in July a whole day of the Global Insurance Forum in Berlin was devoted to ‘Insurance for Global Development & Resilience’. MiN members Craig Churchill from the International Labour Organisation, and Garance Wattez-Richard from AXA co-hosted a working lunch on microinsurance - you can read more about it in detail here. Later this year the 14th International Microinsurance Conference in Lusaka, Zambia, will focus on ‘Inclusive Insurance for Emerging Markets’ and the role of insurance for sustainable development.

These are heady days for inclusive insurance. A new climate insurance programme funded by the UK Department for International Development (DfID) and by the InsuResilience Investment Fund, will reach more than 690,000 families in Kenya, Malawi, Mali, Zambia, Cambodia and Myanmar. According to industry website, “new tech including blockchain, the internet of things and big data analytics is changing the outlook for microinsurance.” Parametric insurance could revolutionise the resilience of small-scale farmers who “are at the mercy of the palpable effects of global warming which are making weather conditions more severe around the planet.”

It is clear that inclusive insurance to build resilience is - no pun intended - a hot topic. The MiN welcomes any partnerships or collaboration which advance this important work. However, we caution against duplicating efforts or reinventing the wheel, and given the Network’s expertise and knowledge, developed over many years, it is essential that members actively engage with and shape policies and strategies.