September 16, 2020: Set against the backdrop of the Covid-19 pandemic and record-breaking extreme weather events such as typhoon Ampham in South Asia, members of the governing body of the InsuResilience Global Partnership, the High-Level Consultative Group (HLCG) came together in their third meeting yesterday night to discuss the Partnership’s response to a changing risk environment.
The increasing risk of both, natural hazards and pandemic crises represents fundamental challenges to vulnerable countries’ development and economic growth. As highlighted by Alfred Alfred Jr., Finance Minister of the Republic of the Marshall Islands, who co-chairs the Partnership on behalf of the V20 Group, vulnerable countries “must start building resilience now as the frequency and intensity of climate-induced disasters grow worse over time and will make us even more vulnerable.” Otherwise, so the Minister, the failure to mobilize investment in preparedness and resilience will “leave hundreds of millions of people and our economies in extreme danger.”
In fact, 2020 has shown just how much preparedness, including through access to pre-arranged, predictable and reliable financing, and the upscaling thereof, matters. Like every other country, V20 members were unprepared for the Covid-19 crisis. Yet, unlike every other country, the majority of V20 membership was and is facing typhoons, hurricanes, heavy rain or sudden drought at the same time. In many cases, however, national set asides or financing streams for emergencies such as health crises or natural hazards, are insufficient and already depleted. Bangladesh and the Philippines, for example, were hit by typhoons right during the economic lockdown; and Ethiopia is dealing with the pandemic on top of significant locust infestations due to the increased humidity linked to cyclones. The same goes for many others. Having kicked off the V20-led Sustainable Insurance Facility (SIF) at the New York Climate Summit last year, the V20 Group aims to tackle this challenge by safeguarding and promoting economic growth in the context of climate change. The SIF is set to complement existing risk financing mechanisms with better availability and access of climate-smart insurance for micro, small, and medium-sized enterprises (MSMEs). With MSMEs typically making up for 40-90% of employment and contributing between 20-70% of GDP in V20 economies, this V20-led effort presents a substantial opportunity to enhance climate-resilient and low carbon development across member states.
Furthermore, proactive investments in risk analysis and risk reduction, including in early warning systems and digital infrastructure, as well as in risk financing mechanisms such as sovereign insurance and social protection, can allow to combine responses to the pandemic and climate impacts; and thus maximize their cost-effectiveness in light of scarce resources.
The HLCG therefore decided to use “these challenging times to turn challenges into solutions and to see the challenges as a chance for further strengthening our Partnership”, as stated by Germany’s State Secretary Ms Flachsbarth, the G20 Co-Chair of the HLCG. Going forward, the Partnership will thus address compound risk, particularly at the intersection of health and climate change. This will entail exploring beneficial overlaps between risk finance mechanisms and pandemic risks, including the preparedness infrastructure and analytical work that comes with that. While in early stages, such approach can contribute to a fundamental shift towards more risk-informed development and economic growth.
While being riddled by crisis, 2020 at the same time also signifies one of the key moments in addressing the climate emergency. One of the most important milestones in the run-up to COP26 is the updating process of countries’ Nationally Determined Contributions (NDCs). NDCs outline how countries plan to address and respond to climate change – and can essentially provide a blueprint for the restructuring of economies in line with low-carbon and climate resilient development. Integrating risk financing considerations into such planning can offer benefits beyond financial protection: through detecting and pricing risk, they can also help attach real value to resilience investments, including in climate-proof infrastructure.
Recognizing the importance of enhancing resilience action in the run-up to COP26, the HLCG therefore agreed to support the integration of risk finance into national resilience planning in the context of NDCs and National Adaptation Plans. In doing so, the Partnership will build on collaboration with key partners, such as the NDC Partnership, the UNFCCC, and the Insurance Development Forum and also work on enhancing data availability key to risk analysis. This work will also support the Partnership’s target to reach a total of 80 vulnerable countries that have comprehensive risk management strategies in place by 2025. Furthermore, with adaptation remaining grossly underfunded, making sound economic sense of resilience investments by eliciting their true value through enhanced risk analysis and pricing is urgently needed to shift public and private finance.
The meeting, which also gave HLCG members space to issue their joint Declaration on Gender and update their Governance Charta, marked the first major engagement between G20 and V20 countries during the global pandemic. With Covid-19 having catapulted risk, preparedness, risk financing and resilience to the forefront of international debates, while also painfully reminding everyone of joint vulnerabilities in the context of globalized financial markets and trade, strong cooperation within the InsuResilience Partnership and beyond, is of utmost importance. And given the ticking clock on climate change, it has never been more urgent.