Insurance for assisting adaptation to climate change in developing countries: a proposed strategy

This paper suggests a two-tiered climate insurance strategy that would support developing country adaptation to the risks of climate variability and meet the intent of Article 4.8 of the United Nations Framework Convention on Climate Change (UNFCCC). The core of this strategy is the establishment of a climate insurance programme specialized in supporting developing country insurance-related initiatives for sudden- and slow-onset weatherrelated disasters. This programme could take many institutional forms, including an independent facility, a facility in partnership with other institutions of the donor community, or as part of a multi-purpose disaster management facility operated outside of the climate regime. Its main purpose would be to enable the establishment of public-private safety nets for climate-related shocks by assisting the development of (sometimes novel) insurance-related instruments that are affordable to the poor and coupled with actions and incentives for pro-active preventive measures. A second tier could provide disaster relief contingent on countries making credible efforts to manage their risks. Since it would be based on precedents of donor-supported insurance systems in developing countries, a main advantage of this proposed climate insurance strategy is its demonstrated feasibility. Other advantages include its potential for linking with related donor initiatives, providing incentives for loss reduction and targeting the most vulnerable. Many details and issues are left unresolved, and it is hoped that this suggested strategy will facilitate needed discussion on practical options for supporting adaptation to climate change in developing countries.