Rich nations study details of massive insurance program to ease Third World climate change damages

By Lisa Friedman, Evan Lehmann | 06/10/2015 08:34 AM EDT

BONN, Germany — Countries already bearing the brunt of extreme weather events are cautiously optimistic about a new insurance scheme designed by the world’s wealthiest nations to protect about 400 million people in the world’s most vulnerable communities.

BONN, Germany — Countries already bearing the brunt of extreme weather events are cautiously optimistic about a new insurance scheme designed by the world’s wealthiest nations to protect about 400 million people in the world’s most vulnerable communities.

Official details about the disaster-risk reduction program, announced as part of the Group of Seven (G-7) decisions this week, remain sparse. But a top Munich Re official involved with the plan told ClimateWire that Germany has kicked in with an initial €150 million ($169 million) and other large industrialized countries are expected to follow.

Activists working to raise awareness about the climate-related damages that countries are suffering now — not just years from now — say the insurance program has the potential to do a lot of good. But, they said, more answers are needed about where money will come from and how the mechanism will work.

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"I think there’s a lot of good intentions behind it, but it really needs to be done in the right manner. Communities have had a very mixed experience with insurance," said Sven Harmeling, a climate expert with CARE International.

The G-7 announcement comes amid a long, contentious debate within international climate change discussions about how to compensate countries that are already facing severe economic losses — like Vanuatu, which earlier this year lost about 70 percent of the structures in its capital city when Cyclone Pam struck.

Wealthy countries have chafed at the notion of a compensation fund, though, and have steadfastly tried to marginalize the issue in the U.N. talks.

Activists meeting in Bonn this week as diplomats work out a new international climate agreement said the G-7 insurance program is the first significant acknowledgement by wealthy countries that that there are some impacts to which poor nations won’t be able to adapt.

"There is an implicit recognition of loss and damage," said Harjeet Singh, international climate policy manager for Action Aid. "There is a clear acknowledgement that there is and is going to be massive negative impacts."

To be built on African and Caribbean insurance models

According to the G-7 communiqué, the United States, Germany, Italy, Canada, Japan, France and the United Kingdom vowed to increase "direct or indirect insurance coverage against the negative impact of climate change related hazards" by as many as 400 million people by 2020. The program will build upon existing risk-insurance programs in Africa and the Caribbean "and other efforts to develop insurance solutions and markets in vulnerable regions."

In an email to ClimateWire, Peter Hoeppe, head of Munich Re’s Geo Risk Research Department, said the company helped provide input to the G-7, developing several models for the leaders in consultation with Germany’s ministry of economic cooperation and development.

Germany will cover the first two years of the five-year program. Under it, an estimated 300 million people will be indirectly covered through insurance systems for sovereign risks. An additional 100 million people would be directly insured by individual micro-insurance programs.

"Munich Re feels the G-7 initiative to support developing countries, protect themselves from climate risks and use insurance solutions as one of the financing mechanisms is urgently needed," he said.

Calling the target of 400 million people by 2020 "an important milestone on the way to adapt to climate change," he said insurance solutions can play a key role in helping communities.

"The need for more climate protection is clearly recognized by the G-7, and there is urgent need for the various parties in the climate change debate to adopt a relevant agreement at the climate conference in Paris so that people most affected by climate change get prompt and effective assistance," Hoeppe said.

Unlike a conventional aid program, an insurance approach would require recipients of coverage to pay premiums, and insurers could require policyholders to reduce their vulnerability to extreme weather, eventually decreasing future damage claims.

But activists said they are still hoping to learn some basics — like who will pay the premiums and how people in poor and vulnerable countries will get their claims met. They also cautioned that a reinsurance mechanism cannot be wealthy countries’ only answer to loss and damage.

"Insurance is only one of a thousand things we must do. Insurance is about risk transfer and risk sharing, not risk reduction. Reducing risk means you build a dike, you strengthen your infrastructure, you protect your crops," Singh said. "Great, they started talking about resilience, but it really should have been done in a more comprehensive manner."

CARE International’s Harmeling agreed: "The concrete activities must be a complement to a long-term political agreement on loss and damage so as not to create the perception that poor countries are bought off and to signal that we are serious about dealing with this."

Lehmann reported from Washington, D.C.