There is increasing recognition among the international community of the need for urgent and concrete action in mitigating climate change, and addressing its impacts by effectively supporting particularly vulnerable countries’ own efforts to manage climate change induced disaster risk. Well-designed climate risk insurance – when applied in conjunction with other disaster risk management measures and strategies – can protect people against climate shocks by acting as a safety net and buffer shortly after an extreme weather event. In 2015, we saw a major shift in political narratives about how climate change related risks are addressed moving away from an attitude of coping with impacts (ex-post) to that of effectively managing risks before they occur (ex-ante).
By initiating a Climate Risk Insurance Initiative (InsuResilience) in 2015, the G7 countries acknowledged the central role insurance plays in a comprehensive climate risk management approach. Building on the 2015 InsuResilience Initiative, G20 and V20 countries then moved to launch the InsuResilience Global Partnership in 2017 and to promote the development of a broad menu of climate and disaster risk finance instruments, including insurance (CDRFI). In bringing together representatives of the G20 and the V20, international organizations, the private sector, civil society and academia , the InsuResilience Global Partnership aims to aspire to delivering results in six areas: By 2025, (1) increase the number of people protected by risk financing and insurance arrangements to 500 million, (2) ensure vulnerable countries have comprehensive disaster risk financing strategies in place and (3) adopt CDRFI integrated with comprehensive risk management systems, while (4) increasing the cost-effectiveness of risk finance and insurance arrangements, (5) aligning increased disaster resilience with human development objectives and (6) building robust evidence for effective and cost-efficient climate and disaster risk insurance solutions.
Under the overall guidance of the German Federal Ministry for Development and Economic Cooperation (BMZ) and in cooperation with the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), we are contributing to InsuResilience by providing strategic and technical advice to the members of the Partnership, specifically the V20 Group as well as the InsuResilience Secretariat, facilitating dialogue among stakeholders, including private sector, civil society and partner countries, and undertaking research on the nexus between resilience, insurance and risk reduction.
Amongst others, this includes us co-chairing the Partnership’s Principles and Impact Working Group and providing technical advisory and support to the V20 regarding their engagement with InsuResilience and the development of the V20-led Sustainable Insurance Facility (SIF). The aim of our work is the design of needs-based advice to support vulnerable countries in their approach to climate and disaster risk financing, including insurance, and their leadership on related policy issues in the international arena.
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New Background Paper:
Macrofinancial Risks in Climate Vulnerable Developing Countries and the Role of the IMF – Towards a Joint V20-IMF Action Agenda
Climate vulnerable countries face considerable macrofinancial risks that threaten debt sustainability, worsen sovereign risk, and harm investment and development prospects. Prepared in collaboration with the SOAS Centre for Sustainable Finance and the V20 Secretariat, this paper reviews the macrofinancial implications and risks of climate change, in particular the impacts of climate vulnerability on sovereign risk and the cost of capital, with special consideration to challenges facing the V20. It also examines the International Monetary Fund (IMF)’s responsiveness to these challenges to date and recommends ten initial areas for a joint V20-IMF Action Agenda.
The IMF can play an important role in supporting climate vulnerable countries in mitigating and managing macrofinancial risks stemming from the physical and transition impacts of climate change, leveraging opportunities from climate policies to boost growth, investment and resilience. While the IMF’s attention to climate issues has increased markedly, including through research produced by IMF staff, the Fund has been rather slow to address climate-related financial risks in its operational work, comprised of surveillance, technical assistance and training, and emergency lending and crisis support.
A non-representative survey among finance ministries and central banks of V20 countries indicates the desire for more support from the IMF in addressing climate risks and vulnerabilities. The views expressed by V20 members suggest that the IMF should integrate climate risk analysis in its surveillance activities, including Article IV consultations as well as Financial Sector Assessment Program assessments and Debt Sustainability Framework analysis conducted with the World Bank; scale up technical support; and explore options for developing its toolkit for climate emergency financing.
To address the needs of climate vulnerable economies and support them in building resilience through improved mitigation and management of climate-related macrofinancial risks and enhanced conditions for critical investments in adaptation and development, the paper suggests ten potential action areas for a joint V20-IMF Action Agenda:
- Mainstreaming systematic and transparent assessments of climate-related financial risks in all IMF operations
- Consistent, systematic, and universal appraisal and treatment of physical climate risks and transition risks for all countries in Article IV consultations and Financial Sector Assessment Programs
- Advancing disclosure of climate-related financial risks and promoting sustainable finance and investment practices
- Exploring synergies between fiscal and monetary policies
- Mainstreaming of climate risk analysis in public financial management and supporting the development of a climate disaster risk financing and insurance architecture
- Supporting climate vulnerable countries with debt sustainability problems
- Developing the IMF toolkit for climate emergency financing
- Exploring options to use Special Drawing Rights (SDRs) to support climate vulnerable countries
- Supporting the design and implementation of carbon pricing mechanisms
- Institutionalizing collaboration between the Fund and the V20
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.
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.
By: Sara Jane Ahmed, V20 Finance Advisor
The coronavirus pandemic is causing global disruption and uncertainty that will continue for many months to come and will have implications on livelihoods, economic growth, fiscal space, investment, and losses to financial and human capital. It will make even more vulnerable the lives of those already living in precarious economic conditions.
Prior to the Covid-19, the Vulnerable Group of Twenty (V20) Ministers of Finance, which represents 48 developing countries, were the fastest growing in the world, supported by strong demographic trends. While the Covid-19-led economic lockdown may cause uncertainty, the growth profile is driven into further uncertainty because of the impacts of climate change, both in the form of disasters that are growing in intensity and frequency, and accumulating long-term financial risks as a result of accelerated climate change, technology, economic and financial headwinds.
There is already mounting debt in climate vulnerable developing countries with more than US 2.3 trillion of external debt and this, in combination with a collapsing GDP, 10-40% decline in remittances, and a large fiscal effort during the Covid-19 lockdown, during recovery and to sustain growth, means more debt. Vulnerable developing countries may be ill-prepared for future shocks and worsening long-term climate-related risks such as sea-level rise, drought and pest infestation.
Conventional financial theory already significantly underestimates risk and consequently underestimates the importance of investments and action to reduce climate vulnerability and increase sustainability. Risk underestimation damages economies, in particular micro, small and medium enterprises (MSMEs), and the poor and vulnerable that rely on them.
Financial protection for the extreme poor and vulnerable people remains low with disaster risk reduction financing per capita at 66 US cents between 2010 and 2018. So far, US$48 billion has been committed by international institutions to help countries manage the fallout from the Covid-19 pandemic with US$23 billion from the IMF, US$10.6 billion from multilateral development banks and US$1.3 billion from the UN Global Humanitarian Response Plan. Of these commitments, 96% has been loans of which 27% are on concessional terms.
Moreover, only 25% of bilateral financing and less than 50% of multilateral financing has targeted the most climate vulnerable countries with climate change adaptation funding. The Covid-19 global pandemic brings with it the consequence of undermining or reversing any development gains so far. Prior to Covid-19 and compounding damages of climate change, the annual international funding gap for social services and social protection alone was US$84 billion with 87% of the total required in low income countries.
While analytics points to the fact that resources are not correlating to where science and practice indicates vulnerability is located, this is a great opportunity for donors to become more effective with their support. Moreover, the recovery packages present an opportunity to drive economic transformation that yield positive welfare effects for the poor and vulnerable and jumpstart the MSME growth engine they rely on.
Some actionable opportunities for actors engaged in the financial protection agenda such as the InsuResilience Global Partnership include: (1) open-source and accessible climate data and treatment of data by enabling cost-benefit analysis towards better risk reduction, risk management and resilience investments; (2) more South-South and country originated activities in vulnerable countries, which relates to increased capacities and streamline of international funding mechanisms to expand beyond capacity building and technical assistance, but also on implementation; (3) while large agencies favor large countries due to scale, there must be more effort and emphasis to work in smaller markets, which are increasingly becoming more exposed to climate change with a growing protection gap; and (4) North-South global cooperation in joint risk sharing can be facilitated through enhanced concessional support.
- Hill, R. et al. (2020). Funding COVID-19 response: Tracking global humanitarian and development flows to meet crisis needs. Retrieved from https://bit.ly/3bHEj24
- Tilly, A. (2020). At what cost? How chronic gaps in adaptation finance expose the world’s poorest people to climate chaos. Retrieved from https://bit.ly/32cnJ7w
- Overseas Development Institute [ODI]. (2015). Financing the Future: How International Public Finance Should Fund a Global Social Compact to Eradicate Poverty. Retrieved from https://bit.ly/3hdVdXd
Ahead of the New York Climate Summit on September 23, the V20 Group* kicked off their Sustainable Insurance Facility (SIF) by discussing the proposed Operationalization Framework with key partners. In doing so, the V20 call for greater ambition and action for addressing a key gap within the existing climate and disaster risk financing architecture: The lack of climate-smart insurance for micro, small and medium enterprises (MSMEs) in vulnerable economies.
The event itself was framed by introductory remarks from Sayed-Khaiyum, Fiji Minister for Economy, as well as official representatives from the German Federal Ministry of Economic Cooperation and Development, who both acknowledged the need for accelerated action in V20 economies.
The target group selected by the V20 – MSMEs – was identified due to the substantial contributions they make to employment, GDP, tax revenue, and export, with instrumental effects for fiscal health, financial stability and socio-economic development. At the same time, many MSMEs are highly vulnerable to climate change and increasingly threatened in their productivity, leading to severe ripple effects for those dependent on MSMEs and knock-on effects to the wider economy. Specifically, during a shock, MSMEs may deplete savings, sell productive assets or be forced to borrow at high interest rates to bridge the funding gap. In the absence of financial protection measures such as insurance, it is often only the public budget that can be utilized. This additional pressure in combination with losses to employment and GDP can squeeze public resources further.
As such, climate-smart insurance solutions for MSMEs can help to ensure financial protection and enable productivity. The term ‘climate-smart’ is meant to capture a dual need, namely for (a) insurance products which enable low carbon investments, and thereby contribute to increased efficiencies through cost savings and CO2-mitigation, as well as (b) climate risk insurance, enhancing protection and productivity. The SIF as put forward by the V20, seeks to enhance the development and implementation of exactly those solutions, including through stronger private sector engagement on both ends, the demand and the supply side.
The Draft SIF Operationalization Framework, developed jointly by MCII, the UNEP Principles for Sustainable Insurance (PSI) Initiative and the V20 Finance Advisor, provides a proposal for achieving these goals through collaborative efforts among key partner institutions. Through combining complementary action under dedicated financing vehicles managed by these institutions – the Asia Pacific Climate Finance Fund (ACLIFF, managed by the Asian Development Bank), the InsuResilience Solutions Fund (ISF, managed by KfW and the Frankfurt School), the InsuResilience Investment Fund (IIF, managed by KfW and BlueOrchard) and the Natural Disaster Fund (NDF, managed by Global Parametrics) – the MSME protection gap can be addressed sustainably.
“Despite their importance, MSMEs inherently face a wide spectrum of risks, many of which are commercially uninsurable. I hope we are able to garner support for the Sustainable Insurance Facility which aims to significantly increase insurance coverage for populations, livelihoods and economic assets against climate and disaster risks,” said Ywao Elanzo Jr, Assistant Secretary in the Ministry of Finance of the Republic of the Marshall Islands.
In Bangladesh, for example, climate change is expected to decrease agricultural GDP by 3.1% each year, equal to US$36 billion. The loss increases to US$129 billion in indirect impacts on complementary industries. “Needs-responsive financial protection, which supports pro-active risk management and risk reduction, in line with strong, country-led CDRFI frameworks is key to ensure sustainability in solutions,” said Soenke Kreft, Executive Director of Munich Climate Insurance Initiative.
To fully capitalize on the respective strengths of each of the dedicated financing vehicles, the proposed Draft SIF Operationalization Framework will be further refined over the coming months together with the key partner institutions. Further supported through MCII and the UNEP PSI Initiative, the SIF will be launched at the next Spring Meetings of the International Monetary Fund and the World Bank in April next year.
* The Vulnerable Group of Twenty (V20) Ministers of Finance from 48 countries is a dedicated dialogue and action platform that works on financial responses to maintain and strengthen fiscal stability and economic resilience in the face of climate change. This includes addressing investments to enable climate-proof growth, reduce exposure to transition and climate risk, carbon pricing, and tackling increasing cost of investment capital due to climate vulnerability. Complementary to these priorities, the final priority area of the V20 is to enhance systematic, climate-smart insurance for micro, small and medium enterprises (MSMEs) in vulnerable countries. This V20-led demand was first expressed in 2016 and culminated in the request for the Sustainable Insurance Facility (SIF) to support climate-proof growth and development.
MCII and the UNEP PSI Initiative are technical partners of the V20. Together with the V20 Finance Advisor, they form the SIF Technical Support Team. The technical work on the SIF is supported by the German Federal Ministry of Economic Cooperation and Development through the Insuresilience Global Partnership Secretariat.
To find out more about the Sustainable Insurance Facility (SIF), read the SIF Kick-Off Summary HERE.
You can download the SIF Kick-Off Event Summary HERE.
To find out more about the V20 and the SIF, read the SIF press release HERE.
Download the DRAFT High Level V20 Needs & Support Assessment HERE.
Washington DC, April 2019:
Finance Ministers from the V20 Group of vulnerable economies announced new financial instruments in collaboration with international partners at the Spring Meetings of the World Bank Group and International Monetary Funds.
The V20 Group of Finance Ministers is a dedicated cooperation initiative of economies systemically vulnerable to climate change. The V20 announced ambitious commitment to achieve energy transition and resilience of their economies in line with the most ambitious climate protection scenarios. It is currently chaired by the Republic of Marshall Islands.
In furthering the ambitions of the group, the V20 announced the preparation of two decisive initiatives during the WB & IMF Spring Meetings: Firstly, the V20 has proposed the Accelerated Financing Mechanism (AFM) for Maximal Resilience & a 100% Renewable Energy Transition to upscale existing risk mitigation tools, guarantees and blended finance facilities, and a new menu of instruments within MDBs and other development banks for adaptation, resilience and renewable energy projects.
Secondly, the Sustainable Insurance Facility (SIF), intends to promote private sector insurance uptake to address climate risks and promote low-carbon development. It seeks to support the provision of financial protection instruments that strengthen the resilience of micro, small and medium-sized enterprises (MSMEs), including of the various vulnerable groups along the supply chain. The V20 sees the SIF as a tool that can crowd in investments in risk reduction, enhance credit access, and better manage public contingent liabilities related to social resilience.
During the round table discussions on the 12th of April both representatives from V20 economies, partners from G20 countries, and heads of international agencies, discussed these concepts and highlighted the need for V20 countries to further press the international agenda especially in the run-up to the UNSG Climate Summit in New York. The risk finance agenda is a key item – underpinned by the V20 contributions, and the V20 chair’s role towards the InsuResilience Global Partnership (IGP) on Climate and Disaster Risk Finance and Insurance Solution. During the roundtable the IGP was mentioned as a primary example of existing V20 leadership.
MCII is a supporting partner to the V20 on the financial protection agenda and contributed to the round table.
InsuResilience Global Partnership Seen as Key Collaboration Between V20 and G20 Countries.
Building on the progress reached since the last V20 Focus Group Meeting in August in Addis Abeba, V20 member countries re-convened in Bali for their Fifth Ministerial Meeting and their Second Dialogue with High-level G20 Representatives. The meetings gathered significant momentum and are bound to result in more ambitious climate action in the run up to 2020, including gathering more support during other high level meetings along the way, such as the upcoming Climate Vulnerable Forum Virtual Summit in November, at COP24 in Catovice, in December, and the Climate Summit in 2019.
Held in conjunction with the Annual Meetings of the World Bank and the International Monetary Fund, the V20 Finance Ministers urged the global financial community and particularly G20 member countries to begin moving from words to action and proactively address the risks and opportunities climate change bears for the financial system and the world economy.
In their statements, the V20 countries pointed to the most recent IPCC Assessment Report (AR6) published just days before, to explain why shifting financial flows and by that the real economy towards 1.5°C aligned investments will substantially reduce climate risks and improve economic growth scenarios. Doing so, however, requires meaningful commitments and actions by G20 countries, including for industrialized states to follow up on their USD 100 billion climate finance pledge, as well as stronger cooperation between the V20 and the G20 Groups.
Unlocking investments for countering climate change relays to both – facilitating the climate resilient and low carbon transition of V20 economies, so that their populations not only merely survive, but thrive. V20 countries highlighted the InsuResilience Global Partnership as the first of its kind strategic collaboration between the V20 and the G20 to address climate risks through insurance and other financing instruments. Similar arrangements for other issues areas, including enabling the low carbon energy transition and building the necessary capacities across V20 economies need to follow.
Already, the V20 are advancing with implementing domestic carbon pricing mechanisms and the development of innovative financing mechanisms to help protect and build climate-friendly and resilient economies. The envisioned V20-led Sustainable Insurance Facility (SIF), a mechanism for technical assistance with implementation at the country level, is aimed at facilitating insurance solutions protecting vulnerable population segments, but also structurally relevant industries vulnerable to climate change as well as MSMEs. This is considered essential to shielding V20 economies from being locked in at development levels way below their growth potential and keeping them from realizing significant societal benefits economic advancement has to offer. For the SIF, the V20 is looking to deepen cooperation with existing structures such as the InsuResilience Global Partnership and Global Risk Financing Facility (GRiF) that was launched in Bali. The Accelerated Financing Mechanism, a second financing initiative currently under way, aims to leverage available multi-lateral and bi-lateral funding to make private sector investment viable for core national priorities on resilience building and 100% renewable energy.
Germany, as one of the leading G20 members of the InsuResilience Partnership reaffirmed its commitment to the objectives of InsuResilience and to working with the V20 to drive forward the use of climate and disaster risk financing instruments.
The Bali meetings demonstrated the commitment, the ambition and the willingness of the present V20 and G20 countries, but also the substantial work that remains. H. E. Brenson S Wase, Finance Minister of the Republic of the Marshall Islands and current V20 President made this very clear, when he highlighted the existential threat posed by climate change and urged the G20 to “deepen international collaboration to hasten the world’s transition to climate-resilient and low carbon development.” In the upcoming months, both groups urgently need to follow suit. MCII, as one of the technical support partners for the V20 during their meetings in Addis Abeba and Bali, is also committed to keep engaging with the V20 on advancing this critical work.
Sovereign risk pools constitute one mechanism to protect countries and their populations against the immediate impacts of disasters. In recent years, regional risk pools such as the Caribbean Catastrophe Risk Insurance Facility (CCRIF) have drawn increasing attention and interest, leading to the creation of the African Risk Capacity (ARC) in 2012, and the launch of the pilot insurance programme of the Pacific Catastrophe Risk Assessment and Financing Facility (PCRAFI) in 2013.
Until today, the three pools together have disbursed around 40 payouts to their member states and thereby helped deliver timely relief to affected states and individuals. CCRIF’s payouts, for example, have been used to maintain the payment of government salaries after disaster and to repair critical infrastructure, including bridges and roads. PCRAFI payouts on the other hand have helped to dispatch medical personnel to impacted areas and to transport emergency goods across the sea, while the funds disbursed by ARC supported the distribution of food and fodder as well as conditional cash transfers. As the respective pools‘ policy renewal rates show, these benefits are valued by many of their members, who continue to use climate risk insurance as part of their climate and disaster risk financing strategies. The support of regional risk pools as a risk financing solution is further substantiated when looking at Southeast Asia, where a fourth pool, the Southeast Asia Disaster Risk Insurance Facility (SEADRIF) is currently under development.
In light of these developments, questions around the transparency and accountability of these risk pools as well as the ability of civil society to engage constructively with them attract increasing attention. This paper discusses the importance of these themes in the context of sovereign climate risk insurance as well as highlights their positive influence on ensuring that the pools benefit those most vulnerable to climate impacts, building public support and improving institutional effectiveness.
This paper focuses on the three risk pools CCRIF, PCRAFI and ARC, and aims to improve understanding of how the requirements of transparency, participation and accountability apply to them by developing corresponding assessment criteria against which the pools are then evaluated. In doing so, the author builds on desk-based research as well as a number of semi-structured interviews with individuals involved in work on and around those risk pools. It finds that – for all of the three pools – gaps remain, but also demonstrates they have made or are making valuable efforts to increase their transparency, accountability and engagement with civil society. In concluding, the paper outlines a set of recommendations for several stakeholders on how to further improve on ‘good governance‘, encompassing civil society organisations, policy holders (governments), donor countries, the World Bank, and the regional risk pools themselves.
In the run up to the G7 Summit in Charlevoix, the G7 Finance and Development Ministers convened in Whistler to discuss several topics related to the overarching theme of “Investing in growth that works for everyone”, including issues surrounding the management of extreme weather events in developing countries.
Overall, the G7 summit of leaders provides a substantial opportunity for shaping the commitment of industrialized countries and to define their responsibilities vis-à-vis global key challenges. The G7 summit in Elmau, 2015, proved pivotal for establishing an international commitment on providing poor and vulnerable people with insurance cover in order to protect developing countries against extreme climate impacts. It was also essential for organizing much needed political momentum for the Paris Agreement on Climate Change in 2015.
Yet, in 2018 the situation stood in stark contrast to previous summits. In light of swelling conflicts around trade, nationalist and self-interested tendencies re-surfacing across G7 countries, Russia re-turning to the world stage with increasing force, and a US President who withdrew from the Paris Agreement and follows his ‘America First’ agenda, only limited progress was to be expected.
Nevertheless, the Ministerial Meeting on Finance and Development in Whistler a week before the G7 Summit made progress on several issues important to climate risk insurance and disaster risk financing. The discussions were structured around women’s economic empowerment and around innovative financing for development, including mobilizing private capital for sustainable development and building economic resilience against extreme weather events.
The elements below summarize the most important outcomes of the Whistler Summit:
Shared understanding that the world’s most vulnerable countries are disproportionally affected by extreme weather events;
International financial institutions called on to assess the role of disaster risk insurance coverage and to propose approaches supportive of more gender responsive disaster risk financing mechanisms to help building economic resilience against extreme weather events;
Strengthened capacities of public financial management to advance sustainable development in developing countries stressed in the context of mobilizing private capital for sustainable development;
Endorsement of the Whistler Principles for Accelerating Innovation for Development Impact to promote, inter alia, the usage of data to drive decision-making, inclusive innovation and smart risk taking;
Shared agreement on the importance of financial inclusion, including access to capital and credit, as key enabler of resilience and poverty eradication and on promoting the importance of women’s financial inclusion together with the G20 and others to support women’s economic empowerment;
Shared commitment to differently address and reduce humanitarian need, risk and vulnerability to strengthen the resilience and self-reliance of affected populations in context of the Whistler Declaration on Gender Equality and the Empowerment of Women and Girls in Humanitarian Action.
Following the launch of the InsuResilience Initiative in 2015, interest in climate risk insurance (CRI) as a means to strengthen climate resilience in developing countries has increased substantially – as have the number of voices calling for impact evaluations that identify and assess the ways in which CRI affects resilience.
If applied prudently and embedded into a wider, comprehensive risk management approach, CRI can make substantial contributions. Far from only strengthening agricultural production and agricultural strategies, it can help increase the ‘three key capacities of climate resilience’ (Anticipate, Absorb, Adapt): On the one side, CRI can increase anticipatory capacities, for example by catalyzing climate risk assessments, and thereby create awareness and sensitize for climate risks. On the other side, CRI strengthens the absorptive capacities – due to its most prominent function, the provision of timely pay-outs, CRI improves financial liquidity and prevents the resort to negative coping stratgies in the event of natural disasters. And, last but not least, CRI builds the adaptive capacities by spurring long-term behavioral change and creating securer economic framework conditions that incentivize adaptation investment.
The objective of this paper is the development of an Impact Evaluation Framework that is responsive to this application context. As our featured review of currently existing impact evaluations reveals, many of those suffer from a ‘resilience gap’: Most evaluations assessing the impact of climate risk insurance solutions concentrate only on the short term and focus predominantly on effects pertaining to agricultural production and related shifts in strategy. They, however, concentrate less on how climate risk insurance influences shock management strategies and wellbeing levels in the short as well as the long term.
Against this background, this paper proposes an innovative framework to close the resilience gap when measuring the impact of climate risk insurance at the micro-level, concentrating on the household as the main unit of analysis. Using a resilience lens and the 3A capacities approach introduced in the BRACED RESILIENCE STUDY, this Framework aims to identify and categorize the effects of insurance according to their influence on the anticipative, absorptive and adaptive capacities of households. The integrated framework is based on subjective and objective measures with a multi-dimensional index, which is both methodologically rigorous as well as feasible for the implementation context, and can be replicated in different settings.
Together with our partner, the LSE Grantham Institute on Environment and Climate Change, we are now initiating the process of testing and further refining the approach by applying the framework in the context of three case studies. We are delighted to make this contribution to the ongoing efforts around climate risk insurance and will keep you updated on the progress of our work.
In the context of the collaboration of MCII and the London School of Economics in the ERICI project (Evaluating the Resilience Impact of Climate Insurance), both organizations hosted a knowledge exchange event with M&E practitioners in the field of climate insurance. Participants represented the broad spectrum of climate insurance stakeholders: development agencies (USAID or InsuResilience Secretariat); civil society (OXFAM); research (Overseas Development Institute or Oxford Policy Management); and the private sector (MiCRO or Vivid Economics). The purpose of ERICI is to develop and test an impact evaluation methodology that integrates an objective and subjective measure of resilience and can be replicated in diverse project contexts.
Swenja Surminski (LSE): Welcome, objectives of the webinar and brief introduction to ERICI project (5 mins)
Roundtable introductions – for participants to briefly state their interest in the topic. Important: Participants can use the written comment function throughout the session to raise any issues or ask questions.
Laura Schaefer & Raul Fernandez (MCII): Introduction to MCII’s experience with objective resilience measures (5 mins)
Abbie Clare (LSE): Using subjective measures alongside objective (<5 mins)
Swenja to invite all participants to briefly respond to the introductory presentations and raise any issues based on their own experience.
Further discussion focuses on three topics:
(1) The importance of randomisation
Randomisation is a key part of the strategy for evaluating the impact of insurance programmes on resilience. One of the most successful examples to date is from the IBLI programme evaluation in Kenya, which used discount vouchers as the instrument of randomisation. Is this the gold standard for RCTs in this field in terms of econometric rigour and ease of implementation? Can rigour and accurate impact measurement be attained without randomized treatment allocation? How can randomization be introduced when researchers are not fully in control? What are suitable tools and elements within project implementation that favour randomization (e.g. vouchers, discounts, etc.)?
(2) Impact evaluations in challenging contexts – beyond randomization
Although experimental rigour is essential to provide the causal impact of insurance on a population, it will only ever be used in a very small number of research-led trials. How can counterfactuals be built in the context of business development / project phasing up? Can a principled-approach be used to develop an evaluation tool that NGOs, governments and civil society organisations can apply in practical situations?
(3) Systems metrics for resilience
The evaluation of adaptation interventions requires a range of metrics, one of which is resilience. Resilience operates on many systemic scales (individual, household, community, national, global) and is often said to include a transformative component. In the context of climate insurance, is it possible to prove causality for these type of transforming effects? Can we make use of structural equation models at the community level?
How to make climate risk insurance work for the most vulnerable: What next after the Paris Agreement?
Climate change threatens sustainable development and resilience, impairs socio-economic development and reinforces cycles of poverty across the globe. Because the risks often fall more heavily on those least able to reduce or recover from them, there is a need for assistance for the most vulnerable people and countries. The absence of economic safety nets which could cushion the adverse impact of these climate-related disasters remains a serious concern.
Well-designed climate risk insurance – when applied in conjunction with other disaster risk management measures and strategies – can protect people against climate shocks by acting as a safety net and buffer shortly after an extreme weather event. In this way, insurance can promote opportunities by helping to lessen financial repercussions of volatility and can stimulate transformation by incentivizing risk reduction behaviour and fostering a culture of risk management.
As outlined in the Paris Agreement, the relevance of insurance as a tool within comprehensive climate risk management has been recognized by policymakers and practitioners around the world. Many actors are currently investing resources in developing and supporting climate risk insurance schemes, and are looking for ways to implement insurance on a larger scale; many of these efforts are specifically targeted at covering the poor and vulnerable in developing countries. Now is the time to learn and adapt from existing pilots and schemes, to ensure that climate risk insurance efforts effectively contribute to supporting poor and vulnerable people in finding climate-resilient development pathways.
The MCII Side Event contributes to the learning process by presenting the results a study that MCII did in the context of the G7 InsuResilience, called “Climate risk insurance for the poor & vulnerable: How to effectively implement the pro-poor focus of InsuResilience”.
Based on the MCII Pro-Poor Principles for Climate Risk Insurance, experts will elaborate on how insurance tools can be effectively implemented to benefit poor and vulnerable people by bringing in their distinct perspectives and organizational backgrounds.
Frank Fass-Metz (BMZ): Status quo of the G7 InsuResilience Initiative and Germany’s support for climate risk insurance.
Thomas Loster (Munich Re Foundation): THE PRIVATE SECTOR PERSPECTIVE: WHAT DO THESE SEVEN PRINCIPLES MEAN FOR INSURESILIENCE?
Aaron Oxley (RESULTS UK): Views from civil society: The importance of focusing on effectively meeting the needs of poor and vulnerable people.
(tbc) Practical Application of Climate Risk Insurance on the ground: An operational perspective: What do the Pro-Poor Principles mean for on-the-ground implementation of insurance projects?
MCII Press Briefing (09 Nov, 10:00-10:30, Dhakla)
Michael Zissener (MCII): 7 GUIDING PRINCIPLES HOW TO MAKE CLIMATE RISK INSURANCE WORK FOR POOR AND VULNERABLE PEOPLE.
Thomas Loster (MCII & Munich Re Foundation): Recommendations from the private sector on how to apply climate risk insurance in developing countries.
Christoph Bals (MCII & Germanwatch): Recommendations from civil society on the implementation of the G7 InsuResilience initiative.
PIK – MCII Joint Side Event (16 Nov, 10:30-12:00, Bratislava, EU Pavilion)
find the flyer HERE
The IPCC AR5, G7 leaders and COP21 have addressed climate risk insurance (CRI) as an important tool to enhance the resilience of the most vulnerable against climate change risks. The side event will specify the relevance of CRI in the context of agricultural insurance solutions and Loss & Damage.
1) Often, a widespread implementation of crop-insurances fails because of an unreliable determination of yield loss claims, notably in Sub-Saharan Africa. If climate-attributable yield losses could be assessed adequately, this information could be used to determine yield loss claims for crop micro-insurances to stabilize smallholder farmers’ incomes and decrease the vulnerability of the food production system.
2) The G7 InsuResilience has the opportunity to change the paradigm of how poor & vulnerable communities manage climate risks. To ensure that CRI contributes to climate-resilient development pathways, it is key to effectively tailor CRI to meet the needs of affected people.
What is the significance of climate risk insurance (CRI) in the context of agricultural insurance solutions and Loss & Damage?
How can climate risk management be improved by integrating insurance and what role does the private insurance sector play?
How can yield loss assessment fill the gaps for crop micro insurance schemes in order to stabilize smallholder farmers’ incomes and decrease the vulnerability of the food production system?
What is the opportunity for the G7 InsuResilience Initiative to change the paradigm that how poor & vulnerable communities manage climate risks?
Christoph Gornott (PIK): CLIMATE ATTRIBUTABLE YIELD LOSS INDICES – A WAY TO BRIDGE THE DATA GAP
Hans Joachim Schellnhuber (PIK)
Peter Hoeppe (MCII)
Branko Wehnert (GIZ)
Karsten Löffler (Allianz Climate Solutions)