2013•11•12     Bonn

A new report by the Munich Climate Insurance Initiative and the Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH (GIZ) examines how insurance fits into a country’s comprehensive climate risk management strategy.

The report explores how insurance can enhance existing risk management approaches to assist affected populations and enhance prevention and risk reduction. Including risk transfer tools like insurance may in some cases also speed up recovery efforts after extreme weather events. By transferring some of the risk and the financial burden to a third party, the report finds evidence that some insurance programs have shielded national budgets of governments. Furthermore, insurance availability is correlated with better economic performance after shocks such as weather-related hazard events (e.g. typhoons, hurricanes). On the household level, insurance has been shown to manage risks that would be too large for individuals to cover on their own after losing their assets in a natural catastrophe.

The report also finds evidence of limitations and identifies opportunities for using insurance to manage climatic risks. Programs should be designed and implemented as part of an integrated climate risk management strategy involving a balanced mix of approaches. This strategy is comprised of three elements:

1. Information and data collection
2. Risk prevention/reduction
3. Risk transfer

The first element assesses the underlying risk, identifies the most appropriate risk management strategy and increases risk awareness. Risk prevention/reduction includes measures such as early warning systems, better building codes and enforcement, improved agricultural practices, and investment in infrastructure. Finally, risk transfer instruments, such as insurance, transfer the financial losses associated with risks that cannot be prevented or reduced.

The findings show that a combination of these management tools can lead to a reduction in costs and an increase in the benefits of using limited private and public funds.

The study shows that design and implementation of comprehensive country-driven climate risk management strategies and approaches require the international community to foster better understanding on combinations of tools and approaches, help replicate good practices across and between countries, and provide guidance on overcoming operational challenges (e.g., lack of technical expertise).

This comprehensive 50-page report was published in November 2013 and is authored by Koko Warner, Kristina Yuzva, Michael Zissener, Susan Gille, Janina Voss, and Solveig Wanczeck.