A group of United Nations backed initiatives are looking to expand the use of parametric or index insurance and reinsurance in the Pacific region, with a study expected to identify new use-cases and possibilities to drive uptake.
The Pacific islands are not strangers to parametric insurance, having a World Bank supported Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI) initiative and the Pacific Catastrophe Risk Insurance Company (PCRIC) already operational in the region.
PCRIC leverages parametric disaster risk pooling and then approaches the reinsurance market to get the best price for sovereign level disaster coverage for Pacific island nations.
But this new United Nations backed initiative will look at parametric and index based insurance coverages that could gain wider adoption and be rolled out to businesses and people in the region.
The Munich Climate Insurance Initiative (MCII), an initiative hosted at the United Nations University, Institute for Environment and Humans Security (UNU- EHS), is working with the Pacific Financial Inclusion Programme (PFIP), to study the potential for wider use of insurance products to protect against disaster and climate related risks in the Pacific islands region.
Three islands are being studied to begin with, Fiji, Vanuatu and Tonga, with the goal being to, “develop appropriate disaster risk financing mechanisms and corresponding implementation plans, including: suitable index-based insurance products covering the risk profiles identified, reinsurance coverage, insurance distribution arrangements, etc.”
“People in the Pacific are among the most vulnerable to climate change and they require new forms of protection”, commented Sönke Kreft, Executive Director of MCII. ”We are prepared to tackle the challenge of finding new forms of climate risk insurance solutions in what is considered an almost uninsurable context.”
“From fact-finding missions to implementation, this will be a proud UN inter-agency collaboration to help countries address new and pressing threats,” added Prof. Dirk Messner, Director of UNU-EHS.
“Pacific countries and its people are in dire need of suitable climate risk adaptation and financing models, market driven instruments like insurance at meso and micro levels offers a sustainable approach,” said Krishnan Narasimhan, Deputy Program Manager and Project Lead, PFIP.
The ultimate goal is to create suites of index-based or parametric insurance products that can provide rapid or immediate relief and payouts for damage and losses suffered as a result of extreme weather events.
Highlighting the importance of these products, the initiatives said, “Climate risk insurance helps individuals break out of a vicious circle of poverty and vulnerability. Increasing people’s ability to manage, as well as to mitigate their vulnerability to climate hazards through insurance can significantly reduce communities and individuals’ recovery times, build resilience and contribute to long-term social and economic well-being.”
Vital alongside this initiative is access to efficient reinsurance capital to support the roll-out of primary index-insurance or parametric products.
Alongside the sovereign disaster insurance provided by PCRIC in the Pacific islands, the PFIP initiative to provide parametric coverage to the population is a positive next step in building tiers of disaster risk insurance related resilience for the region.