G20 urged to act on climate insurance & risk transfer

by Artemis on July 7, 2017

The G20 group of nations, also known as the Group of Twenty and an international forum for government leaders and central bankers from 20 major economies, have been urged to seriously look at the role of climate insurance and risk transfer in helping to increase resilience to climatic events at their meetings in Hamburg this week.

Mind the Gap sign (Source: Autoprotect)“The countries of the G20 are responsible for more than 75 per cent of global greenhouse gas emissions,” explained Peter Höppe, Chairman of the Munich Climate Insurance Initiative (MCII) and Head of Geo Risks Research/Corporate Climate Centre at Munich Re.

“It is high time that they take responsibility to support the most vulnerable countries in their fight against climate change and the increasingly severe impacts of floods, heatwaves and changing weather patterns. One major milestone would be a climate insurance partnership that helps vulnerable and poor countries and communities better cushion the impacts of extreme climatic events,” Hoppe continued.

The Munich Climate Insurance Initiative (MCII) and United Nations University Institute for the Environment and Human Security (UNU-EHS), which hosts the MCII, have both appealed to leaders to put risk transfer on the G20 agenda, highlighting the need for innovative approaches to insurance and reinsurance protection, and the fact that G20 backing is required to push for greater adoption of climatic risk transfer mechanisms.

The availability of climate related insurance and risk transfer instruments is clear, with products such as index-insurance or micro insurance at the bottom level, while sovereign risk pools, parametric triggers, reinsurance and capital markets instruments such as catastrophe bonds can provide the macro-level climate risk transfer required to support the greater roll-out and adoption of climate insurance products across the globe.

The capital markets and insurance-linked securities (ILS) have a clear role to play here, as evidenced by the recent World Bank supported Pandemic Emergency Financing Facility (PEF) catastrophe bonds and swap, which were backed by ILS funds and institutional investors.

“Insurance solutions are an integral part of risk management. Well-designed approaches can deliver multiple benefits – from reliable and quick payouts in the case of a disaster, to better risk assessment and pricing and special incentives for risk reduction,” explained Jakob Rhyner, Board Member of MCII and Director of the United Nations University Institute for the Environment and Human Security (UNU-EHS).

He continued; “Climate risk insurance can also be an effective tool for supporting the implementation of the resilience-focused goals of the Paris Agreement.”

There is no lack of will or ability in the insurance, reinsurance and ILS market to support initiatives that look to transfer climate, or other, risks away from developing nations to capital providers that are able to bear them.

With climate change high on the G20 agenda, the experts hope the summit of leaders and bankers will result in some kind of statement or action on climate insurance or risk transfer, at the least a display of will to help the industry address some of these issues more easily.

“The G20 summit offers the chance to substantiate international cooperation on climate insurance related instruments. By establishing a concrete partnership, focused on the poor and vulnerable regions, that supports the upscaling of existing climate insurance schemes, such as those already in place in Africa, this approach can be brought to a wider set of countries.

“G20 support by the high emitting countries should focus on those people and communities who cannot afford a private insurance. This pro-poor perspective is crucial in approaching climate insurances,” commented Christoph Bals, Vice-Chair of MCII and Policy Director of Germanwatch.

A G20 statement on climate risk insurance would follow on from a commitment made by the G7 countries in 2015 to provide climate insurance to 400 million poor and vulnerable people by 2020, an initiative that continues to make progress.

As we’ve written numerous times before, the capital markets and ILS risk transfer technology is well-positioned to provide some of the financial underpinning necessary to help the global mission to provide more insurance protection to the world’s most vulnerable to climate, catastrophe and weather risks.

Political statements, urging a capital-source agnostic approach to creating a multi-layered, global climate and weather risk transfer program for the world’s poor, would go a long way towards stimulating the action required to make a real difference to people’s lives.

The capacity and expertise is abundant right now and it’s surely time for these initiatives that seek to close protection gaps to reach out to the capital markets and ILS experts to tap into what can often prove to be the most efficient risk transfer capacity around.

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