The role of multilateral climate funds in supporting resilience and adaptation through insurance initiatives

Briefing papers
June 2018
Pastoralists come to Harshim town from neighbouring woredas and Somalia looking for water. Credit: UNICEF Ethiopia/2017/Michael Tsegaye CC

Key policy messages

  • Insurance instruments can help individuals, communities, businesses, organisations and governments to cope with extreme weather events by releasing post-event payouts in exchange for regular premium payments. They can also provide co-benefits for risk reduction and adaptation. But they are not suited to address all risks related to climate change; need to be carefully designed to support the most vulnerable; and should minimise the potential for maladaptation.
  • Multilateral climate funds have approved a total of US$136.15 million in grants and concessional loans to projects that entail an insurance component – including microinsurance and sovereign risk pools – between 2008 and 2017. They have supported the generation and provision of risk information, backed some of the upfront costs that have previously prevented new insurance schemes from being established under market circumstances, have supported the scaling up of existing initiatives and have contributed to an enabling regulatory environment. However, there is still a long way to go, as only a small fraction of losses related to natural hazards in low and middle income countries are insured.
  • In order to justify the use of international climate finance, projects entailing insurance components should promote comprehensive, ex-ante climate and disaster risk management, effectively incentivising or mobilising resources for risk reduction, anticipatory action and preparedness as part of wider adaptation and disaster risk reduction (DRR) programmes and policies. Where insurance premium subsidies are provided to make coverage more affordable, these should be designed to reduce, rather than reinforce vulnerabilities and exposure to climate risks and they should not create incentives against adaptation investments.
  • A stronger dialogue and partnerships between the different stakeholders – international climate funds, governments, insurance companies, multilateral development banks, NGOs and donors – is essential to establish which parts of insurance development and implementation merit international climate finance, and what the multilateral climate funds are able and willing to support.