Insurance giants seek action to help developing world adapt to climate change

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Source: GLOBE Foundation

Representatives of more than 100 leading international insurance companies are calling on governments worldwide to harness risk management techniques and insurance expertise to help the developing world adapt to climate change.

The United Nations Environment Programme's Financial Initiative (UNEP FI), in collaboration with three insurance initiatives - the Geneva Association, the Munich Climate Insurance Initiative (MCII) and ClimateWise - presented the statement aimed at world leaders and negotiators of the United Nations Framework Convention on Climate Change (UNFCCC) at a press conference held in Lloyd's of London.

The statement, issued on the eve of an international, low-carbon investment conference convened by the UK government, will highlight how governments can unlock significant potential to increase the protection and reduce the vulnerability of developing world populations and economies from natural disasters through better risk management and by enabling insurance-type approaches.
 
It notes the recent floods in Pakistan, China and Niger are a timely reminder that the world must adapt to become more resilient to the long-lasting and significant changes in climatic conditions being experienced across the world.

These changes are likely to have the most damaging impacts on the developing world, where even small economic losses can have long-term effects on development, and where human health is generally less robust.

Andrew Torrance, Chairman of ClimateWise (a global collaboration of leading insurers focused on reducing the risks of climate change launched in 2007 by HRH The Prince of Wales), commented: 'With climatic disasters inflicting more and more damage, the increasing reliance of governments on foreign aid alone is unsustainable.'

He added, 'As the global climate continues to warm, we have to find new ways to protect people and economies from the impacts of extreme weather, particularly those who are most vulnerable. Insurers have much to offer, but this potential can only be leveraged through a partnership approach with governments. With over 100 of the world's leading insurers standing ready to engage, the opportunity for partnership building is immense.'

The four groups assert that enormous potential can be derived from a partnership-based approach to tackling the climatic risks faced by people and governments around the world. Indeed, several communities affected by climate change are already benefiting from projects that improve risk management and feature insurance elements.

Over 4500 Mongolian herders covered by a public-private index-insurance scheme are currently receiving indemnity payments totalling around US$1.4 million for cattle mortality losses caused by a particularly harsh winter.

And in September 2008, the Caribbean Catastrophe Risk Insurance Facility (CCRIF) - a public-private partnership - paid US$6.3 million to the Turks and Caicos Islands after Grand Turk was hit by Hurricane Ike.
 
The insurance industry can support adaptation efforts by applying its expertise in risk management, by helping to incentivise loss reduction mechanisms, by developing new insurance products and by raising awareness among the many stakeholders of the insurance industry, including governments and climate change negotiators.

The statement underscores the view that risk management mechanisms are currently falling considerably short of their potential in delivering resilience benefits to the developing world. The insurance initiatives are therefore calling on governments to:

  • Implement risk reduction measures already agreed at the 2005 World Conference on Disaster Reduction
  • Provide a suitable enabling environment, including economic and regulatory frameworks, for risk management and insurance to function at all levels of society
  • Invest in reliable risk exposure data and making it freely available to the public
  • Act on lessons learned about the benefits of regional public-private partnerships and micro-insurance schemes which reduce losses for climatic risks

Patrick M. Liedtke, Secretary General and Managing Director of The Geneva Association, a leading international insurance economics 'think tank' on insurance and risk management issues, said: 'The core principle of risk management and loss prevention is that in most cases 'prevention is better than cure'. If governments, especially in the developing world, can implement robust risk management and loss reduction measures then a significant amount of both human suffering and economic loss could be prevented.'

Today's statement calls on governments to formally recognise the potential role for insurance in the United Nations climate change negotiations, and to open channels for dialogue at a national level so that progress can be made immediately.

Summing up, Achim Steiner, UN Under-Secretary-General and UNEP Executive Director, said: 'The insurance industry is making it clear: it has the expertise and the creative solutions to assist vulnerable countries and communities manage the risks of climate change. But it is a partnership that works both ways.'

'Governments need to act on this opportunity and harness this reservoir of risk assessment skills. Secondly, the insurance industry needs a fighting chance of success. In other words governments need to back big cuts in emissions in line with the scientific reality,' he added.

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