MCII Climate Risk Adaptation and Insurance in the Caribbean

Background

• ·         From data they have collected about natural catastrophes at Munich Re.

o   Changes in the atmosphere have already contributed to more frequent and more intense catastrophic events.

o   Developing countries are more at risk and are already seeing the worst results.

o   Want to develop risk transfer mechanisms to support global warming adaptation around the world.

o   Official submission to the UNFCCC was made in 2008

•  More submissions in the UNFCCC in Feb this year and another one to the loss and damage program later on.

o   2 pillar idea.  Insurance is not enough alone, there must be prevention too – that will cost $3bn pa.

•  For middle layer risks (10 – 20 year events) and this can be organised by regional and local people.

•  Big events (100 year events) that can totally devastate a poor country should be organised by an international mechanism with a global insurance pool.

• Total cost about $10bn/pa.

·         Pilot scheme in the Caribbean.

o   The Caribbean is highly exposed region – the increase in intense hurricanes, severe drought and sea level rise can have a compounding effect.

o   Caribbean Catastrophe Risk Insurance Fund (CCRIF)

o   Micro insurance – has benefits at the macro level.

§  It strengthens the resilience of the locals to cope with the impacts of climate change

·         Germanwatch is involved in this scheme.

o   When recovering from a natural disaster, people often have to use their assets for the most urgent need, they can’t think about the long term.  So in a drought they have to eat their animals, so they don’t have them for future production.

o   Insurance can be one way of mitigating that threat.

o   But it is crucial that the incentive system is working in the right way.  Many insurance systems can behave as a moral hazard.  People say “I’m insured, I don’t have to adapt” but the system can be set up to avoid that. 

• ·         Just covering the costs of damage is not whats interesting – they want to trigger voluntary adaptation.  That works in this case because people are paid out on a given criteria (severity of drought for example), not the actual death of their animals. 

• ·         Working on a pilot scheme in Jamaica, Belize, St Lucia, Grenada and possibly Guyana.

• ·         Ideally, the premium should be paid out of an adaptation fund that is filled by the industrialised countries (GCF funding?)

·         This Caribbean initiative is a good test of the scheme.  It can be a livelihood ‘shock absorber’ to allow residents to get back to work after a disaster, the other benefit is the credit protection in that it allows farmers, for example, to borrow against their farms or livestock.

More information at: 

www.climateinsurance.org