A G20 partnership for climate risk insurance?

When the G20 gather for their annual summit in Hamburg in July, climate policy will be one of the items on the agenda – at least this is the intention of the German Presidency of the meeting. Discussions will focus on the implementation of the Paris Climate Agreement, but also on issues such as the pricing of greenhouse gas emissions and improved transparency regarding investment risks, for instance in fossil energy projects.

The German Federal Ministry for Economic Cooperation and Development also hopes to set a particular highlight: for the G20 to place more emphasis on the role of climate risk insurance in the fight against climate change, perhaps even including a section to this effect in the summit declaration or in the G20 Action Plan. Preliminary talks to this effect are already being held.

In northern Ghana, droughts alternate with floods caused by severe downpours; after such disasters small farmers are often left with nothing. Photo: © Adam Patterson/Oxfam

The German government’s commitment to this issue is hardly surprising. In the run-up to the 2015 Paris summit on climate change, the German G7 Presidency promoted the InsuResilience initiative; the objective of this scheme is to give 400 million people in poor countries access to climate risk insurance by 2020. The envisioned approaches include micro-schemes where individuals would be able to benefit from weather index insurance directly and other approaches in which national governments would be the insured parties. For example, a country could insure its agricultural sector against poor rainfall or use climate risk insurance to fund reconstruction after a natural disaster. Existing programs that are to receive enhanced support include the African Risk Capacity, the Caribbean Catastrophe Risk Insurance Facility and the Pacific Catastrophe Risk Assessment and Financing Initiative Facility. In Paris donor countries had pledged a total of 420 million US dollars; this amount was increased to 550 million US dollars at the UN COP22 Climate Change Conference in Marrakech. Germany’s contribution is 190 million euros. Climate risk insurance schemes have thus become a relevant element of German climate finance.

The intention now is for G20 countries to support or even expand this initiative. Of course there is nothing wrong with that, on the contrary: Climate risk insurance can play an important role in addressing the consequences of climate change. However, enthusiasm for this (relatively new) approach should not blind us to some essential aspects:

Climate risk insurance is only one element of a complex solution: Only some of the consequences of climate change, such as crop failure and damage after natural disasters, can be covered through climate risk insurance. Insurance schemes do not address slow-onset changes such as salt water intrusion into aquifers, rising sea levels or regional desertification. Climate risk insurance must therefore be embedded into an overall development strategy aimed at strengthening the resilience of a population and helping it adapt to climate change.

Responsibility to support: Climate risk insurance policies are not a free lunch. First of all, they must be custom-tailored to their respective clients: risk analyses must be drawn up and weather or climate data collected. And as in conventional insurance, there are premiums to be paid for climate risk insurance – but poor countries hoping to protect their populations against the risks of climate change have hardly contributed to climate change in the first place, and their budgets often simply do not allow them to allocate their scarce resources to insurance premiums. This means that many countries cannot even afford climate risk insurance, or they need to go even deeper into debt to do so (e.g. by borrowing from the World Bank). From a global justice perspective, poor countries need the continued support of richer countries to finance climate risk insurance: not only with the establishment and maintenance of the schemes themselves but also with the payments of premiums. Anything less would be shirking responsibility in a highly cynical manner, because in general the countries concerned have done little or nothing to cause climate change.

An area for the public sector, not a new market for corporations: Euphoria for the new climate risk insurance instrument should not obscure what is really at stake: protecting human beings. This should never be forgotten. It would be disastrous if the debate about climate risk insurance were abused to gradually open up new markets for the big insurance companies. There is a good reason why instruments to secure human existence – for instance social security systems – are part of the public sector. This should also apply to climate risk insurance. Subjecting these schemes to the corporate primacy of profit maximization would mean viewing the quality of protection and the needs of the poorest of the poor and of populations suffering from the consequences of climate change as a cost factor that companies will try to minimize in the interest of their shareholders.

Focus on the poorest population groups: Climate risk insurance must be consistently designed to help the poorest population groups and support their rights, as these groups are the ones most affected by climate change. They need to be involved in the development of the schemes to ensure that they are suited to the situation on the ground and embedded in a comprehensive strategy to increase the resilience of the groups concerned. The instruments must pay particular attention to the poorest and most marginalized population groups – those who for ethnic, cultural or economic reasons are excluded from social safety nets and generally cannot afford insurance premiums.

A kind of “G20 Partnership” in climate risk insurance that would take these aspects into account could constitute an important contribution to dealing with the consequences of climate change, one that does not let down the poorest members of the community of states. Moreover, if the richer countries within the G20 led the way by providing financial support for such schemes and involve other G20 members on the basis of their capabilities, the individual G20 members would be doing greater justice to their respective responsibility for climate change in the proportion of their economic power.

Sabine Minninger, Brot für die Welt
Jan Kowalzig, Oxfam