Scaling up programmes such as the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and the African Risk Capacity (ARC) is one way the G7 is looking to insure 400 million people against weather extremes by 2020.
“The world is expecting extreme climatic events such as excess rain in East Africa, floods in Peru and drought in South East Asia, to name a few”, declared Jerry Skees from the University of Kentucky and the GlobalAgRisk Program. He further explained that the future will witness forecast-based financing with the development of weather forecast.
CCRIF is the first multi-country initiative providing parametric insurance against earthquakes and heavy rain. It differs from traditional indemnity insurance by providing ex-ante assessments on the ground, based on the risk profile of the country, historical climatic events and economic characteristics. The intensity of the event is then determined along with possible losses and related pay-outs. CCRIF’s advantage is rapid payouts sometimes not exceeding 14 days. Following tropical cyclone Ivan in 2004, which caused damages reaching USD 6 billion, the governments of the Caribbean countries came together to develop a risk transfer mechanism which later provided 13 payouts for 8 Caribbean countries amounting to USD 38 million. Over the period 2010-2014, CCRIF collaborated with the Munich Climate Insurance Initiative to implement a project in the Caribbean funded by the Federal Ministry of the Environment in Germany. Its aim was to develop insurance products that target individuals, small holder farmers, seasonal workers and low-income people. CCRIF is planning to scale up to target 120 million low-income people living in Latin America and the Caribbean and aiming to replicate their programmes to other countries in Asia.
On the African side, ARC is developing to scale up in African countries in providing insurance against floods, cyclones and epidemics. “ARC’s objective is to ensure 30 African countries against climate change, with USD 500 million to be mobilised for that purpose”, explained Massamba Diop, from ARC, Senegal. The countries are required to develop a contingency plan before they sign up with ARC.
The last ten years witnessed a momentum in terms of protecting the poor with governmental schemes and putting climatic catastrophes as priority areas. Insurance is part of the solution for these low-income people. However, other financial tools, such as contingency funding and reserves complement risk fund solutions. Some countries receive funds but the regulatory environment does not allow them to disburse on time. “An adapted response to catastrophes would be ensuring the right mechanisms where money can flow, and strengthening government safety net programmes to reach the poor”, clarified Olivier Mahul, Program Manager of the World Bank’s Disaster Risk Financing and Insurance Program.
As a conclusion, despite the challenges, the G7 Initiative remains achievable and depends on innovative partnerships between the public and the private sector.
Written by Jenny Nasr, Development Coordinator at the Microinsurance Network.