The insurance community is playing an increasingly important role in helping vulnerable communities in Asia adapt to climate change both before and after a disaster.
Insurance initiatives across the Asian continent include partnerships with governments to provide affordable cover to vulnerable communities and measures to reduce the impact of extreme weather, such as better land use or improved water management.
New systems are also being introduced to help get money to affected communities quicker. Payouts are triggered by rainfall and wind speeds exceeding certain pre-set levels.
However, while local insurance initiatives are proving effective, there are arguments that a global approach is needed. The Munich Climate Insurance Initiative has called for governments and the insurance industry to work together more efficiently.
Launched by Munich Re and made up of insurers, climate change experts, non‑government organisations and policy researchers, the MCII points out that while the insurance industry provides a mechanism for pooling risk, it can also drive risk reduction.
A two-pillar approach to the issue is being proposed. The first pillar emphasises risk reduction, and the second focuses on a risk-sharing solution. The risk-prevention pillar would involve initiatives ranging from data collection and risk analysis to moves to reduce greenhouse gas emissions, improve the management of ecosystems, develop better land use and building more resilient infrastructure.
The prevention pillar would be accompanied by an insurance pillar, which would be made up of two tiers. The first tier would consist of a climate insurance pool for what the MCII terms “very extreme losses”. It estimates the pool would need financial resources of between $3.2bn (£1.9bn) and $5.1bn, depending on how many countries participate in the scheme. The second tier would cover medium losses by offering insurance cover to vulnerable communities through public and private partnerships.
Alice Steenland, group vice-president for corporate responsibility at Axa, says: “The MCII’s call is part of a rising momentum in the insurance industry – which Axa is part of – to start designing more efficient solutions in building global resilience.”
Although Axa supports the idea of international risk pooling, the insurer believes the specific features of the MCII’s proposal need further elaboration. “For high-level risk in vulnerable countries, mutualisation at the global level seems to be a solution,” Steenland says. “However, when it comes to the issue of funding, would it be provided by governments – with the nations’ taxpayers at the end – or the insurance sector, with the customers at the end, or both?”
In addition, many believe it is essential governments play a role in situations where insurers are facing a level of risk that would make risk-based insurance premiums unaffordable for local people. The Flood Re initiative in the UK is one example.
“In such cases, we call for public rules and public-private partnership schemes setting the scene for a fair and sustainable insurance market,” says Steenland. She adds that this should be coupled with greater availability of reliable weather data, as the actuarial models on which insurers are underwriting and pricing their products are no longer accurate.
In a report on climate change, Swiss Re says insurance is an effective method to finance the cost of climate-related disasters in Asia. The reinsurer adds: “It is most effective when viewed as an integral part of a much broader climate adaptation strategy.”
The report points out that cost-effective adaptation measures can mitigate potential losses by up to 90% in some locations. However, Swiss Re warns: “Extending adequate cover to poor communities in developing countries is often difficult because many lack a mature local insurance market.”
The government of the Philippines is working on a partnership with the private sector to develop the country’s microinsurance industry to help more people access cover. The initiative includes establishing a microinsurance regulatory framework, and is being supported by the Asian Development Bank’s Japan Fund for Poverty Reduction.
Risk-sharing ideas are not new in Asia. David Simmons, managing director at Wills Re Analytics, points out that there are already several well-established schemes in the region, where a state-backed pool insures domestic properties against catastrophes, with this pool backed by the global reinsurance market.
In addition to underwriting risks, Willis Re is also looking at ways to send faster payments to people affected by extreme weather events. Simmons says: “Innovation continues – for example, Willis Re and the United Nations International Strategy for Disaster Recovery recently proposed a scheme to the Philippines senate to provide windstorm and rainfall cover for municipal and city governments in the Philippines.
“This groundbreaking cover would be on a parametric basis, using Nasa satellite data to determine loss triggers to ensure rapid payment to the local governments so they have the money when they need it.”
A fast-payment scheme was put in place in the Philippines in the aftermath of super typhoon Haiyan. The Philippines Insurance Commission set up the Immediate Processing, Guaranteed Benefits programme, which included on-site claims action centres in some of the worst affected areas.
An Insurance Commission spokesman says: “As part of the programme, the IC issued a circular letter ordering all insurance companies to temporarily relax the identification requirements in processing insurance claims. To facilitate the immediate and effective processing of insurance claims of the typhoon victims, the IC allows these victims to temporarily waive their presentation of official identification documents, most of which are presumed to have been damaged or lost during the typhoon.”
Microinsurance providers were quick to respond to the programme, and just over a month after the typhoon struck they had paid out the equivalent of $4.7m to farmers, fishermen and vendors, among others. Members of the Philippine Insurers and Reinsurers Association had paid out $5.1m of property, motor, personal accident and marine hull claims by 20 January this year.
But insurance cover and swift payouts are only one side of the coin. As the MCII points out, more work is needed to help make communities more resilient to climate change, and insurers are also involved in this area.
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