As the world prepares for COP29, it’s a perfect moment to assess how the microinsurance industry can help advance climate resilience for vulnerable communities globally. All eyes will be on the meeting in Baku, Azerbaijan this November, to ensure the momentum gained in previous years towards solutions for the climate crisis continues. These annual events bring together governments, NGOs, development agencies and leaders from the private sector from all countries to measure progress and discuss how best to address climate change. Last year’s event saw a historic agreement to operationalise the Loss and Damage (L&D) Fund which will help vulnerable countries in dealing with the effects of climate change.
The recognition of insurance as a tool in the resilience and adaptation toolkit, and by extension the potential that microinsurance can play in the strategies that are discussed at the different COPs, is growing more prominent in the dialogue each year. In particular, in helping those in countries most affected by climate change, who are already some of the most economically vulnerable in the world. This was highlighted at the recent International Conference on Small Island Developing States by the representative from the UN Capital Development Fund, who “pointed to microinsurance schemes that allow for fast claim payouts in the case of natural hazards, as well as the Global Fund for Coral Reefs which uses blended finance to unlock private investments in the blue economy.”
A task for the global insurance industry
Globally, the insurance industry is taking its role in the climate emergency seriously, and the Microinsurance Network’s members are leading the way at a grassroots level, working with vulnerable communities, regulators and local insurance markets around the world. For example, the June Member Meeting took a step closer to the Luxembourg financial inclusion ecosystem to find ways to contribute to broader solutions. Several members, including ADA, Aseguradora Rural, AXA (Axa Climate), Blue Marble, Confiança Microseguros, Dhan Foundation, Feed the Future, Lorica, WRMS and WFP have also been working on mapping green inclusive finance projects and highlighting best practice by those involved in addressing climate change adaptation and mitigation.
And, in regions where climate change is having a direct impact, there are several microinsurance initiatives that are helping communities – particularly those involved in agriculture – become more resilient.
Parametric insurance helps build resilience in Asia
For example in Nepal, this year’s monsoon season could affect around 1.8m people as 35-55% more rain than average is predicted to fall. Given agriculture makes up 24.6% of the country’s GDP and employs around 50% of the population, the impact could be huge. Current insurance options in the country aren’t suitable for these types of disasters, so the country is now looking to parametric insurance as an alternative. As it pays based on the weather event itself rather than its consequences, such as crop yield, it benefits insurance companies by lowering the cost of claims assessments, and incentivises farmers to make the best decisions for the crops as payout isn’t linked to plant failure.
Elsewhere in Asia, parametric insurance is being developed to deal with other types of extreme weather. In India, Insurtech company, IBISA, has just launched a heat stress insurance product to help protect dairy farmers against loss of income due to heat stress. State-of-the-art sensors and advanced algorithms are used to gather and analyse satellite images and other data which measure and monitor heat stress in cattle. As with other parametric insurance, payouts are automatically triggered once a threshold event has occurred, removing the need for insurance companies to manually assess each case.
Innovative product development helps communities in Africa
Across Africa, there have also been efforts to encourage insurance uptake through microinsurance initiatives. The devastating floods that hit Kenya this April, highlighted the importance of risk mitigation strategies, particularly for SMEs, many of whom lost their businesses and livelihoods. Local insurance provider, Britam, is one of the players actively developing products to tackle the effects of climate change on these vulnerable groups. For example, in 2023 they launched their flood insurance product – an index insurance that monitors flood incidents remotely. To date, they have paid out KES 20m (approx USD 155K) to 300 households and are scaling the product to cover more families in the region most affected by flooding.
Pula is another insurance company using new technologies and innovative product design to make insurance more affordable to these communities. Not only do they bundle insurance with essential products like seeds and credit to make it more accessible, but they’ve also streamlined their business processes by leveraging AI, on-the-ground data collection mechanisms, remote sensing and end-to-end automation. This not only lowers their operating costs, but also ensures more affordable insurance products and faster claims payouts for customers.
Other inclusive insurance players in the region working on initiatives for vulnerable communities include: MIC Global; Zep-re with its subsidiary Acre Africa, who are providing education and training to companies offering parametric insurance in Zambia; and Etherisc, who uses a blockchain-based platform to issue smart contracts for parametric insurance.
These inclusive insurance initiatives make up just one part of a holistic approach to addressing climate risk and can work alongside projects such as the Africa Integrated Climate Risk Management Programme (AIRCM). This programme – which will be rolled out across seven African countries - was launched in May 2024 in partnership with several international organisations including the International Fund for Agricultural Development (IFAD). The USD 19.77m set aside for Senegal will be used over the next five years to increase resilience and improve the livelihoods and food and water security of 169,200 households in nine regions of the country.
Latin America and the Caribbean prepare for an extreme weather year
Latin America and the Caribbean are set for a tough year in 2024 as the number of ENSO-induced weather events is likely to increase. This is because the region will see a very quick transition from strong El Niño to La Niña weather conditions. This has only happened twice since 1950 and is likely to test the resilience of the region which already faced a tough 2023-24 El Niño that brought heatwaves, wildfires and flooding to different parts of the continent.
These extreme weather events can have a massive impact on the region’s economy. For example, a +/- 1°C anomaly in temperature can add between 0.24 and 0.47 ppts of annualised headline inflation. As a result, finding ways to be financially resilient to climate change is becoming increasingly important. Whilst crop resilience has grown since 2016, thanks to higher insurance penetration and government initiatives to increase its uptake, it’s still well below the global average. The estimated crop protection gap for the region is around USD 6bn.
This makes initiatives like the Catastrophic Parametric Insurance programme launched by the Guatemalan government so important. With this, the Ministry of Agriculture and Livestock purchased a single insurance policy that includes many family farmers as the primary beneficiaries, without them having to pay premiums. This parametric insurance pays out directly to the beneficiaries once a specific event has been triggered. As of 2023, the programme covered 100,000 farmers against excess rain and drought events.
In the private sector, insurance companies are also designing interesting inclusive insurance products by leveraging data to better understand their target market. For example, Insurtech company, Blue Marble has developed their weather-based index insurance product, Café Seguro, in partnership with Nespresso to protect coffee farmers against increasing climate risks. The product integrates satellite-based historical weather activity from the last 20 years (updated in near real-time) with agronomic data from farmer cooperatives to design indices that will determine payouts for events that exceed a threshold trigger.
Microinsurance remains an important tool for building resilience
Whilst there will be many topics covered at this year’s COP29 - from reducing carbon dependence and developing climate technology to boosting diplomacy – it’s important to remember that microinsurance is an important tool in tackling these challenges. By incorporating it into global climate adaptation and resilience strategies, it can help to solve some of the most pressing issues around climate change.
But for it to have the necessary impact, it should be leveraged properly. It needs to be tailored to the people who really need it. That means it must be accessible, affordable and fit for purpose as the economic effects of climate change continue to reshape the needs of vulnerable communities. To do this requires greater investment and innovation across the inclusive insurance industry. We’re already seeing examples of how taking a different approach and using data to create customer-centric products is having a positive impact on climate-vulnerable populations. But, to date, insurance penetration in the regions that need it most is still low. More needs to be done to make sure the communities most vulnerable to the impacts of climate change can access and benefit from affordable and relevant insurance.
So, as we head towards COP29, we’re presented with a great opportunity to shape the future of our industry for the better, and it is clear that case studies like the ones highlighted in this story show the tangible benefits and improvements to community resilience that microinsurance initiatives can bring. The Microinsurance Network will be strongly advocating for the focus on inclusive and microinsurance solutions and the benefits they can bring to communities to increase at this year’s COP. We invite our members to join this effort by showcasing the solutions already in place as examples of replicable, scalable support for global resilience and adaptation.