After a weekend of discussions in Cornwall, UK, leaders of the G7 (Group of Seven) economies have made a range of commitments to expanding climate and disaster risk insurance, alongside other climate financing pledges.
Climate risk and resilience is one of the hottest topics for global leaders this year, the G7 meetings at Carbis Bay, Cornwall seen as one of the key points on the road towards the 26th UN Climate Change Conference of the Parties, or COP26, later this year.
Following the G7 summit, the United States has made a range of specific commitments of note to the global insurance and reinsurance industry, not least the fact it has joined the InsuResilience Global Partnership.
“To reach the partnership’s goal of protecting 500 million poor and vulnerable people against climate shocks by 2025, USAID will help partner governments improve their ability to avert and minimize damage to those most at risk. Through these investments in relief before disasters happen, USAID is empowering governments to respond swiftly to emergencies and support people who lose their livelihoods,” the U.S. Agency for International Development (USAID) announced.
USAID explained that it is important to “empower governments and communities to proactively manage risk before disasters strike, these partnerships help countries protect critical development gains.”
A second initiative that the US has announced joining after the G7 summit is the Risk-Informed Early Action Partnership, a collaboration to build and enhance early warning systems so that climate-vulnerable countries can take early actions to protect lives and livelihoods.
Finally, USAID announced it will become a Co-Chair of the Global Facility for Disaster Reduction and Recovery (GFDRR), a World Bank initiative that helps developing countries understand their risks and reduce their vulnerability to natural hazards and climate change, which supports World Bank work including the use of insurance, as well as reinsurance capital and instruments such as catastrophe bonds.
“USAID is a longtime supporter of the GFDRR, and since 2010, has been a member of the Partnership Council, the Facility’s primary decision-making, oversight, and advisory body. The chair and co-chair of the Partnership Council provide strategic direction to help countries recover from disasters quickly and integrate disaster risk management and climate change adaptation into development strategies and investment programs,” the Agency explained.
That’s three fairly significant commitments from the United States, but there was more.
With a new President installed, the Biden era appears set to see the US playing a much more significant role in important discussions over climate risk, resilience and financing, as well as disaster risk and insurance appears to be an integral piece of this strategic shift under the new administration.
The White House said in a post-G7 summit statement that additional commitments being made by the G7 economies would include “more finance contributing to adaptation and resilience, disaster risk and insurance, as well as support for nature and nature-based solutions.”
“We also encourage further development of disaster risk finance markets,” the White House explained. “Towards this, G7 members have committed hundreds of millions worth of new financing for early action, disaster risk and insurance in line with the InsuResilience Global Partnership and Risk-Informed Early Action Partnership (REAP). We commit to establishing the necessary market infrastructure for private finance to support and incentivise the net zero transition.”
The White House also committed to research and a science led approach, saying, “We will explore how existing and potential new mechanisms and initiatives can support risk reduction, prevention and response to future systemic crises, natural disasters and pace of technological change.”
Other countries are also ramping up efforts in these areas, with the United Kingdom committing £120 million in new funding and Germany €125 million, to “enable quicker responses for vulnerable people when extreme weather and climate-linked disasters hit.”
As ever, insurance and reinsurance will play a key role in ensuring the vulnerable can access the necessary financing to help them recover and rebuild from disasters.
In a statement the UK Government explained, “Pre-arranged financing for vulnerable communities will help build the systems needed to reach the poorest people quickly, such as payments when harvest fail.
“This will protect those most at risk and help reduce losses and damage to communities, infrastructure and livelihoods caused by climate change.”
The UK Government also said, “The UK and Germany will also use this money to invest in the regional disaster protection schemes across Africa, South East Asia, the Caribbean and Pacific to protect the lives and livelihoods of poor and vulnerable people against climate risks. This support contributes to the InsuResilience Global Partnership’s Vision 2025 and the Risk Informed Early Action Partnership (REAP) – two key global coalitions working to reduce the impact of disasters.”
Adding, “This joint action represents substantial new support for countries on the frontline of climate change and humanitarian disasters.”
UK Foreign and Development Secretary Dominic Raab commented, “Tackling climate change is one of the greatest threats of our time as without action, it could push more than 100 million people below the poverty line as soon as 2030.This joint UK, US and German action will enable quicker responses to extreme weather and climate-linked disasters in countries bearing the brunt of climate change.”
German Development Minister Gerd Müller added, “Climate change is a reality – and we must not lose sight of this fact even in these times of the COVID-19 pandemic. It is important that the UK G7 Presidency has made climate action a focus of the summit. As those most responsible for causing climate change, we must assume responsibility for its consequences. Droughts in Africa, floods in Asia – for the poorest, these climate disasters often mean the loss of their livelihoods. But less than 5% of the damage in these countries is covered by insurance. Through our new commitments, we are taking an important step towards insuring, by 2025, 500 million people in developing countries against damage caused by climate change. This means that emergency programmes can provide quick and targeted assistance to those affected when a disaster strikes.”
These new commitments to support the roll-out of disaster and climate risk insurance are designed to protect lives and tackle loss and damage caused by climate change, the countries explained.
It’s important that these initiatives are more than just number-counting exercises, where already in-progress private market projects get bundled under a government backed approach to insure more vulnerable people.
Given the level of innovation in insurance, risk and financial markets, with support from Governments, access to private market risk and reinsurance capital, as well as instruments from the insurance-linked securities (ILS) world, there is the potential to make a significant difference right now and it is this opportunity that must be captured.