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Climate Risk Insurance Debated

JOHANNESBURG - Dec 12/08 - IRIN -- Climate risk insurance was the buzz at the two-week climate change conference in Poznan, Poland, which started on 1 December.

The Alliance of Small Island States (AOSIS), a coalition of island and low-lying coastal countries that share similar development and environmental concerns, especially their vulnerability to the effects of climate change, led the groups lobbying to ensure that insurance would become part of any deal on adaptation.

Members like Papua New Guinea are already feeling the impact: in 2005, 1,000 residents on its Carteret atoll had to be evacuated as the rising sea level was slowly drowning their land.

None of the affected poor countries - often the hardest hit by natural disasters - can afford the losses caused by the intensifying impact of climate change: more frequent and more intense tropical cyclones, flooding rains and longer droughts.

Munich Re, one of the world's largest reinsurance companies, announced in Poznan that in the past 25 years, over 95% of deaths from natural disasters occurred in developing countries, and direct economic losses in the last decade averaged US$100 billion per annum. In low-income countries the losses in relation to national income were more than double those of high-income countries.

A preliminary assessment of the costs and impacts of some key natural disasters, compiled by Munich Re, showed that the most costly event of 2008 was the earthquake in China in May 2008.

Cyclone Nargis, which hit Myanmar in May and claimed an estimated 84,500 lives, was not only the most deadly event of 2008 but also the country's most costly, triggering uninsured economic losses of US$4 billion.

The Poznan conference, which drew 11,600 participants, was at the half-way mark in negotiations on an international response to climate change, to be agreed in Copenhagen at the end of 2009 and to take effect in 2013, the year after the first phase of the Kyoto Protocol expires.

Yvo de Boer, executive secretary of the UN Framework Convention on Climate Change (UNFCCC), which hosted the conference, told reporters that countries were considering including climate risk insurance in the Copenhagen deal.

The Bali Action Plan (BAP), drawn up at the last climate change conference, called for "consideration of risk sharing and transfer mechanisms, such as

insurance" to address loss and damage in developing countries particularly vulnerable to climate change.

If insurance instruments are to be included in the post-2012 adaptation regime, the potential role of risk-pooling and risk-transfer systems must be firmly established, according to Koko Warner, head of Social Vulnerability and Environmental Migration department at the UN University Institute for Environment and Human Security Section (UNU-EHS).

According to Joanne Linnerooth-Bayer of the Austria-based International Institute for Applied Systems Analysis (IIASA), replacing post-disaster humanitarian assistance with externally supported insurance could be a win-win situation for recipients, private insurers and donor organisations.

However, the market on its own could not provide the most vulnerable with sufficient security. "Linking prevention and insurance is essential to getting the incentives right for adaptation," she said.

Which proposal will win the day?

Most proposals on possible climate risk insurance architecture emphasise prevention and insurance, but the AOSIS proposal also had a rehabilitation component. "The AOSIS proposal ... has a better chance of acceptance," noted Warner, who also presented the other big insurance proposal at the conference on behalf of the Munich Climate Insurance Initiative (MCII).

The MCII was set up in 2005 by UNU-EHS, Germanwatch, a North-South watchdog initiative, IIASA, the Munich Re Foundation, the Potsdam Institute for Climate Impact Research, which researches ecological, geophysical and socioeconomic aspects of worldwide climatic change, the European Climate Forum, a platform for joint science-based climate change studies, the Tyndall Centre, which researches sustainable responses to climate change, The Energy and Resources Institute (TERI), focusing on sustainable energy development, the World Bank and independent experts.

Pablo Suarez, a climate insurance expert at Oxfam America, said the final proposal could include the most workable components in each of the proposals. "The MCII proposal has the feedback of some of the leading global experts, so let's just say there is an intense dialogue between the various groups on at the moment."

The Prevention Pillar of the MCII proposal makes reducing human and economic losses its top priorities, and includes carefully designed incentives for preventing or reducing risk. The proposal calls for comprehensive risk assessments across vulnerable countries, which could uncover unforeseen possibilities for risk reduction and help lay the groundwork for risk transfer systems.

The Insurance pillar has two tiers: first, a Climate Insurance Pool that would absorb a pre-defined proportion of high-level risk of disaster loss among the vulnerable; second, a Climate Insurance Assistance Facility that would provide technical support and other forms of assistance, allowing public-private insurance systems to provide cover for the middle layers of risk in these countries.

"The most critical element is to ensure whichever deal goes through, it must help the poorest of the poor, who are the most vulnerable," Suarez said.

Who will pay?

The AOSIS proposal suggested that rich countries pay for the insurance from the Adaptation Fund. The Fund, which has yet to become operational, is expected to raise money from a levy of about two% on credits generated by the Clean Development Mechanism (CDM), set up under the Kyoto Protocol.

The mechanism allows industrialised countries to earn and trade emissions credits by implementing projects in either developed countries or developing ones, and put the credits towards meeting their greenhouse gas emission targets.

The MCII proposal suggested that vulnerable countries pool their risks, which would cost them less.

As the conference reached its last day, there was still dissatisfaction over the Adaptation Fund: developing countries were unhappy with the management of disbursement and the amount of money available, while sympathetic rich countries like Germany said current resources for the Adaptation Fund were inadequate.

Oxfam's Suarez said it was "very likely that some kind of entity - an insurance mechanism - will be set up, which will manage the funding."

The UN has said that $86 billion per year will be needed by 2015 for poor countries to adapt to climate change, but according to some estimates the Adaptation Fund will only reach $900 million by 2012.

The representative from Germany warned industrialised countries that they should stop "playing word games" or they would become a "laughing stock".

Copyright (c) UN Office for the Coordination of Humanitarian Affairs 2008

Integrated Regional Information Network (IRIN)

Copyright (c) 2008 UN Office for the Coordination of Humanitarian Affairs

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