Investigating the Feasibility of Municipal Risk Pooling as an Adaptation Finance Measure (MuRP)
August 2019 - September 2020 | South Africa
Communities vulnerable to flood risks in the Western Cape Province - Western Cape Government
The project will support the government's efforts in preventing and responding to floods in order to better cater for the financial needs of vulnerable population in the Province. In line with the Agenda 2030 for Sustainable Development, the Sendai Framework, and the Paris Agreement, the project aims to work with different actors and rethink adaptation and disaster risk financing, by determining what is at risk, how to reduce these risks, and how best to prepare for imminent impacts.

Project Overview

Given the inter-related link between climate adaptation and disaster risk management (DRM), DRM approaches may be appropriate in alleviating certain climate risks. Several emerging economies use risk retaining strategies (catastrophe reserve funds and budget transfers) to manage the financial impacts of climate hazards: This is the case in South Africa where the public sector is primarily responsible for DRM. Given that climate change is expected to increase the frequency and intensity of climate hazards, it is critical that risk transfer strategies be investigated to effectively manage any financial shortfalls.

Risk pooling is a risk transfer instrument similar to traditional insurance; however, schemes consist of several individual risk holders who wish to aggregate their risks. Risk pooling as a form of climate insurance has been limited to those at the country level. The aim of this research is to investigate the feasibility of risk pooling at the municipal level (the first of its kind). A municipal risk pooling (MRP) facility would avoid issues of compromised sovereignty because decision making regarding the use of payouts and hazards covered are made solely by the implementing country. The research focuses on flood hazard input factors (frequency, severity and geographic spread), the need for an MRP to cover vulnerable communities thereby acting as a safety net, and the financial structure of an MRP that would yield benefits to municipalities while being solvent. To ensure that the findings of this MRP are applicable in other contexts, the research will develop a pilot MRP and a guidance framework outlining requirements and methodologies for MRP implementation.

Our Project Partners

For this project, MCII partnered with the University of Kwazulu Natal, South South North, the Center for International Climate Research (CICERO) and GermanWatch