German climate finance / Loss and Damage

Insuring against climate change


Fidji already suffers from the consequences of climate change Photo: B. von Brackel

Poor countries hit by droughts, hurricanes or floods sometimes need years to recover economically. Climate risk insurance schemes are designed to alleviate this situation and are being promoted vigorously by German climate finance measures. The only catch: not everyone can – or wants to – afford them.

The South Pacific will be coming to Germany in early November: this year, Fiji will be presiding over the UN Climate Change Conference – which will be held in Bonn, the headquarters of the United Nations Climate Change Secretariat, for capacity reasons. The climate diplomats from Fiji have a challenging task ahead of them: heading the negotiations that will translate the Paris Agreement into a set of rules that will permit its implementation. A further crucial issue will be climate finance: The industrialized countries have promised to increase support to developing countries to $100 billion per year by 2020 through instruments such as the Green Climate Fund (GCF) – for which they have to date pledged a mere $10 billion, however.

As the voice of the small island states, Fiji must also ensure that states in the South Pacific in particular receive enough funding to ensure that they can adapt to cyclones, changing weather patterns and rising sea levels, and to be compensated for loss and damage caused by climate change.

Germany is in a relatively good position with regard to its contributions to the Green Climate Fund and the Adaptation Fund, as well as initiatives for new financial instruments such as climate risk insurance. However, the political maneuvering and abstract discussions about climate funds, especially at the world climate summits, often lose sight of the ultimate objective, namely supporting those who cannot protect themselves against climate-related disasters on their own and therefore depend on help. As is the case with the people of Fiji.

The scene is a mountain village in the northwest of Viti Levu, the largest island of the Pacific state of Fiji. Beads of sweat trickle down the faces of people out in the sun, but it’s pleasantly cool in Ela Lotawa’s wooden hut. Only a curtain separates the space in which she serves spinach, cassava and beef from the hut’s sleeping area, where her husband is napping after working in the fields.

Their village of Abaca could be a true paradise. A rooster struts past the open doors, laughing children run by, a brook can be heard somewhere in the background, and the surrounding slopes are covered in lush vegetation. The villagers don’t have to cope with the hectic pace, noise and pollution of the city, nor do they have to worry about paying bills – they simply grow what they need on the island’s fertile soil.

Last year, however, Winston – the first recorded Category 5 cyclone to make landfall in Fiji – struck this tropical paradise. Ela Lotawa simply calls it “the Winston”. Before the storm raged across the village, she brought in her washing, gathered the children, chickens and dogs in her hut, and lashed down the doors, windows and roof with rope. The next day, everything was scattered far and wide – clothes, trees, branches and pieces of the house. One house was blown away; the family now lives in a blue tent labeled “P.R. China”.

The fields on which the villagers had grown cassava and other crops were wiped out. For a whole season, the fields would give them no food. Countless villages on Fiji’s islands had the same experience. 44 people died, thousands of families lost their homes and one third of the gross domestic product was destroyed.

In future, Fiji and other island states will have to adapt to Category 5 cyclones. While climate scientists do not expect global warming to increase the number of storms, they do anticipate them becoming much more violent. The warmer the surface of the ocean becomes, the more energy will feed the cyclones.

Fiji is hardly prepared for this. The authorities still respond only when something has already happened, instead of taking preventive measures. The government has not even adopted an instrument that is becoming increasingly popular in developing countries: climate risk insurance. Those who pay premiums are assisted promptly whenever droughts, storms or tsunamis strike their countries. Compensation can take the form of money or practical aid such as seed.

In 2015, the industrialized countries launched the InsuResilience initiative at the G7 summit at Schloss Elmau in Bavaria. Its objective is to provide 400 million people in the poorest countries access to climate insurance by the year 2020. Germany has so far contributed €190 million to this initiative as part of its climate finance commitments. The goal:  A country as a whole or its inhabitants shall be able to take out insurance directly from one of several insurance companies. This involves initially assessing the risks the respective countries face based on climate and weather data and other factors. Emergency plans are then drawn up to ensure that financial aid arrives promptly where it is needed in the event of a disaster. “The advantage of climate risk insurance is that the underwritten amounts are paid out very quickly,” says a spokesperson for the German Federal Ministry for Economic Cooperation and Development. “A quick payout can save lives and property and helps avoid consequential damage.”

To date, more than 100 million people in developing countries have been insured against climate risks. In the event of a disaster, the Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI), for example, pays out twelve times the premium in order to rebuild infrastructure such as bridges and airports in the wake of heavy rains, earthquakes or tropical storms. Germany was one of the founders of PCRAFI, and the country has contributed around $16 million, nearly half of the G7 commitment. The World Bank is also supporting the initiative.

The majority of the insurance payouts go to Africa. A number of extremely vulnerable island states in the South Pacific – such as Vanuatu or the Marshall Islands – are also insured. Fiji, however, cannot or will not afford the premium. “There are three or four initiatives that have asked us whether we would like to take part,” says Inia Seruiratu, Fiji’s Minister for Agriculture, Rural & Maritime Development & National Disaster Management. “We are currently looking into what will work best for us in the Pacific.”

Sabine Minninger, climate expert for the NGO Brot für die Welt, suspects that the government of Fiji is not convinced that funds will actually be available when needed. Many in the poorest countries also do not understand why they should pay at all – considering that climate change is hardly their fault. A further factor is that the insurance policies cover sudden natural disasters, but not creeping changes like salinization of the soil and groundwater or the rising sea level, which is why Minninger feels that they can only be a part of the solution.

Ela Lotawa can also report such creeping changes in her mountain village. The islanders can no longer rely on the weather patterns – the dry and rainy seasons. “We have been able to predict all of this for many centuries,” she says. “But it’s all mixed up now.”

The rain is a particular problem – sudden, heavy downpours following a long drought can destroy crops. But even the months in which storms usually occur are no longer clear, says Lotawa. “The cyclones are coming at the wrong time, too.” But at least you can take out insurance against them.

Guest post by Benjamin von Brackel,