Insurance is key to finance rising cost of climate risk

Swiss Re: Innovative insurance solutions hold the key to driving climate adaptation initiatives in the developing world and securing the development prospects of communities threatened by rising climate risks, says a new Swiss Re publication. Released today at the opening of this year’s Climate Week NY˚C, “Weathering climate change: insurance solutions for more resilient communities” takes a fresh look at how risk transfer measures help societies adapt to climate change and minimise the financial impact of large natural disasters.

Natural hazards and extreme weather claim scores of lives and cause billions of dollars in damage each year, as recently witnessed by the devastating floods in Pakistan and drought in Russia. According to the report, climate change could severely exacerbate the impact of such disasters, wiping out years of development gains and costing some countries up to 19 percent of annual GDP by 2030.

Cost-effective adaptation measures can mitigate much of the potential loss, in some locations by more than 90 percent. But decision-makers have to make investment choices under great uncertainty and with limited funds. Insurance provides them a cost-effective way to cope with the financial impact of the most severe weather events.

“Insurance is an effective method to finance the costs of climate-related disasters,” says Matthias Weber, Swiss Re’s Division Head Property & Specialty. “It is most effective when viewed as an integral part of a much broader climate adaptation strategy.”
Extending adequate cover to poor communities in developing countries is often difficult because many lack a mature local insurance market. But new forms of risk transfer involving the public and private sectors offer ways to insure climate risks and large natural disasters in such instances. An example of this is the Caribbean Catastrophe Risk Insurance Facility (CCRIF), a multi-country risk pool supported by Swiss Re that innovates in its combined use of traditional insurance and capital market instruments. It provides 16 Caribbean governments with rapid access to financing in the event of hurricanes and earthquakes….