European Microfinance Week: insurance a key component to strengthening resilience to climate change

Thursday, December 12, 2019

The challenges of climate change and the opportunities for financial inclusion, and particularly insurance, came under the spotlight at the recent European Microfinance Week, organised annually by the European Microfinance Platform (e-MFP), culminating in the European Microfinance Award.

Around 450 participants from 62 countries working in all areas of the inclusive finance sector gathered in Luxembourg for the conference last month.

Major award for inclusive insurance

Recognising the huge contribution that insurance can make to strengthening resilience and managing climate risk, this year’s European Microfinance Award went to APA Insurance Ltd of Kenya, who have been pioneering index-based insurance to mostly smallholder and subsistence farmers to cover yields and livestock, thus providing them with a safety net in times of extreme weather. APA currently covers more than 350,000 families whose livelihoods are largely based on agriculture and who are especially vulnerable to the economic impacts of climate change.

It’s the first time the €100,000 award - which seeks to highlight organisations active in the financial inclusion sector that provide financial and non-financial products and services aimed at strengthening the resilience of vulnerable communities to the effects of climate change - has been given to a microinsurance company.

Presenting the award to Ashok Shah, Group CEO of APA, Paulette Lenert, the Luxembourg Minister for Cooperation and Humanitarian Affairs said “This year's award illustrates that inclusive finance has an essential role to play in strengthening the resilience of vulnerable communities to the effects of climate change, which threaten the livelihoods of disadvantaged communities, especially those relying on agriculture, forestry or fisheries. Over the ten editions of the European Microfinance Award, there’s perhaps never been one as relevant and urgent as this. Climate change will increasingly affect all people in all countries – but it is the poor in low-income countries who are the most vulnerable, and for whom resilience is most important.”

Insurance was also highlighted by Annalisa Bianchessi, Senior Communications Manager at MiN during a panel discussion exploring how financial inclusion can help strengthen resilience to climate change – the overall theme of the 2019 event.

Annalisa pointed out that with climate change increasing, the risks for low-income people are widening the insurance gap, and there is an ever greater need to extend the role of insurance from risk transfer to risk management and minimisation. Closing the protection gap requires insurance approaches on all levels - macro, meso and micro - as well as partnerships, innovations, customer centric products providing real value to clients, sustainable, affordable and accessible products, and risk reduction strategies. She pointed to the example of the combined risk reduction strategy and macro-meso insurance policy for the Quintana Roo coral reef in Mexico, a first of its kind scheme which provides protection from storm surges to the local residents and tourist industry. On the micro level, an innovative index-based microinsurance scheme developed by MiCRO and its partners to cover against excessive rainfall, droughts and earthquakes in Guatemala and Colombia is linked to micro loans but is not loan insurance - it’s intended to provide business interruption compensation.

Among the key messages to emerge from the panel, which also included, Jonna Bickel, General Manager at Agronomika Finance Corporation in the Philippines, Ricardo Narváez of the climate-smart lending platform F3 Life/Global Innovation Lab for Climate Finance, and Carlos Arango, Senior Manager for Financial Resilience at RARE and MiN member, Anup Singh of MicroSave Consulting, who moderated the discussion. were that there is no room for complacency! Vulnerable populations are the ones who are most affected and least protected and increasing their resilience to climate risks means better performance on loans, quicker financial recovery of households, better financial recovery of businesses, fewer people in poverty and more economic and social stability in the regions.

Anup outlined the core impact of climate change on low- and moderate-income populations, such as uncertainty in water availability, decreasing crop yields, the need for newer energy sources, loss of biodiversity, and increased health risks. To compound the challenge, many emerging economies are based on climate-sensitive agriculture, have a low technological and scientific base and limited access to knowledge, have limited capacity to adapt to changes resulting from climate change, and lack financial and institutional capacity.

Key takeaways from the session were that insurance is an important tool when it comes to building resilience for climate risks; the protection gap is huge and it takes all players at different levels to close it; products need to be customer-centric, affordable, accessible and sustainable; partnerships are key; there are many innovative solutions in the making; and dialogue with regulators is essential. Annalisa closed her presentation by inviting the audience to start thinking about integrating climate risk insurance and risk reduction and mitigation components into their offers. 

Read more about the semi-finalists' innovative solutions