Investigating the Feasibility of Municipal Risk Pooling as an Adaptation Finance Measure (MuRP)

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    Kehinde Balogun

    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 as decision making regarding the use of payouts and hazards covered are made solely by the implementing country. The research will focus 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.