Insurance as a Response to Loss and Damage?

This chapter asks whether insurance instruments, especially micro- insurance and regional insurance pools, can serve as a risk-reducing and equi- table compensatory response to climate-attributed losses and damages from climate extremes occurring in developing countries, and consequently if insurance instru- ments can serve the preventative and curative targets of the Warsaw International Mechanism for Loss and Damage (WIM). The discussion emphasises the substantial benefits of both micro-insurance programs and regional insurance pools, and at the same time details their significant costs. Beyond costs and benefits, a main message is that if no significant intervention is undertaken in their design and implementa- tion, market-based insurance mechanisms will likely fall short of fully meeting WIM aspirations of loss reduction and equitable compensation. Interventions can include subsidies and other types of support that make insurance affordable to poor clients; interventions can also enable public-private arrangements that genuinely catalyse risk reduction and adaptation. Many such interventions are already in place, and the chapter highlights two potential success stories for insurance instruments serving the most vulnerable: the African R4 micro-insurance program and the African Risk Capacity (ARC) regional insurance pool. While support to these and other insur- ance programs continues to be framed as humanitarian aid based on the principle of solidarity, discussions on the G7 initiative to insure vulnerable households, as well as on ARC’s initiative to link international payments to climate risks, raise the question whether the narrative will evolve from solidarity to responsibility based on the principle of developed country accountability.

Linnerooth-Bayer, Surminski, Bouwer, Noy and Mechler (2019): Insurance as a Response to Lossand Damage? in R. Mechler et al. (eds.),Loss and Damage from Climate Change, Climate Risk Management, Policy and Governance, https://doi.org/10.1007/978-3-319-72026-5_6