Rich countries advocate for insurance as the main response to climate disasters. But this burdens vulnerable countries with not just the direct costs of climate disasters but also the financial burden.
Our report Not a silver bullet, released this week, finds that rich, developed countries have been advocating insurance as the main response to climate disasters in order to distract from their moral and legal responsibility to pay for the damage their policies and emissions have caused. In an egregious injustice, vulnerable countries are paying not just the majority of direct costs of climate disasters, but are also being forced to pay for the “solution” as rich countries champion insurance as the main response to climate catastrophes, with vulnerable countries expected to pay the premiums.
The report says that there is little evidence that climate insurance is a cost-effective approach, and the evidence that does exist shows that other options – such as providing developing country governments with public funds to build up social safety nets, alternative livelihood programs, relocation funds, national contingency funds, and concessional credit. The report gives examples of how these might work.
The report examines three case studies in detail:
- The catastrophic loss and damage from Hurricane Maria caused loss and damage Dominica estimated at US$1.37 billion (or 226 percent of its GDP). Sovereign insurance under the Caribbean Catastrophe Risk Insurance Facility (CCRIF) provided just US$19.3 million or 1.5 percent of the cost of loss and damage incurred. Whilst having the advantage of arriving quickly, it was vastly overshadowed by traditional international assistance provided by other governments. However, the vast majority of the loss and damage, and recovery costs, will be paid for by the people of Dominica. There is no way to scale up insurance to deal with loss and damage of this size – the premiums would be prohibitive.
- This was compared with the impact of Hurricane Harvey on Texas. The United States is one of the most heavily insured countries on earth, yet as damage from climate related events increases, loss is more and more being shifted from the private to the public sector: the exposure of the US federal government grew more than four times the rate of private sector insurance exposure. It is the public sector that is coming to the rescue of Americans in the face of climate extremes–and so the US and other developed countries, should acknowledge that the same will be necessary for developing countries.
- This study also analyses the experience of Malawi with sovereign-level drought insurance from the African Risk Capacity (ARC). ARC served as Malawi’s primary source of risk financing to address the devastating impacts from extreme weather events, such as the extended drought that followed a once-in-500-years flood in 2015, causing US$365.9 million in loss and damage. ARC, initially challenging that an insurance claim payout had been triggered, ultimately paid out US$8.1 million nine months after Malawi declared an emergency; this was not only “too little too late”, but also undermined the chief advantage of climate insurance—an immediate payout to address urgent needs post-disaster.
Even a doubling or tripling of insurance coverage for poor countries would have only scratched the surface of the loss and damage associated with the major climate events analyzed. This study says that insurance cannot be scaled up to the point where it would provide a viable disaster response. In each case, the bulk of support came from other sources of public finance. For developing countries future support will have to rely on international finance. Selling insurance as a panacea, when it is at best only capable of playing a small supporting role, is not helpful.
“Rich countries are advocating for climate insurance as the main solution to climate disasters to distract from their responsibility to pay for the climate damage their emissions have caused. Developing countries have to literally “buy into” these schemes using their own scarce public resources to pay for insurance premiums. There should instead be a global solidarity fund, from which developing countries should be able to draw and make their own decisions about which financial support measures to use to address severe climate impacts (called Enhanced Direct Access (EDA)). Such EDA approaches could result in transferring more international climate funding directly into existing national funds or national climate savings vehicles. There are many options open to vulnerable countries – the profit making private sector is not the only approach”, said Liane Schalatek xxxxxxx
“The Paris Climate Agreement recognized that climate change is already causing loss and damage to vulnerable countries. Fully implementing the Paris Agreement requires putting in place a way to fund the huge loss and damage costs that vulnerable people are already paying”, said Julie-Anne Richards, one of the authors of the report. “Expecting developing countries to take out insurance, and pay premiums, for the climate change risk they didn’t create is just doubling down on climate injustice. Rich countries - and polluting industries in particular - have a responsibility to pay for the climate damage their policies and products have caused. Putting in place an equitable Climate Damages Tax, a tax on the extraction of coal, oil and gas, would ensure the industry responsible for the most climate pollution pays for its damage on vulnerable countries.”
The authors of the report can be contacted at the climate talks occurring in Bangkok: (either our contact details or media persons contact details here).