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.
The MCII, which was launched by Munich Re and is made up of insurers, climate change experts, NGOs and policy researchers, points out that while the insurance industry provides a mechanism for pooling risk, it can also drive risk reduction.
Risk-reduction and sharing
A two-pillar approach to the issue is being proposed with the first pillar emphasising risk-reduction, while the second would focus 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 planning management and build 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 that the pool would need financial resources of between $3.2bn and $5.1bn, depending on how many countries participated 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, corporate responsibility, Axa, says: "The MCII's call is part of a rising momentum in the insurance industry that 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.
Mutualisation of risk
Steenland argues: "For high-level risk in vulnerable countries, mutualisation at the global level seems to be a solution. 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 that 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.
Steenland suggests: "In such cases, we call for public rules and public-private partnership schemes setting the scene for a fair and sustainable insurance market."
She argues 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 reinsuer 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."
Microinsurance
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 have access to cover.
The initiative includes establishing a microinsurance regulatory framework, and it 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 payments to people affected by extreme weather events faster.
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."
He adds: "This ground-breaking cover would be on a parametric basis, using NASA satellite data to determine loss triggers, to ensure rapid payment to the local governments so that 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 Yolanda.
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."
He adds: "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 is only one side of the coin. As the MCII points out, work is needed to help make communities more resilient to climate change, and insurers are also involved in this area.
Vulnerable communities
The Axa-CARE partnership aims to help vulnerable communities face environmental risks through climate change adaptation and disaster adaptation projects.
Shubhro Mitra, chief corporate responsibility officer, Axa Asia, says: "Since 2011, more than 750 000 people have benefited from the projects of this long term partnership."
In Asia the partnership supports projects in India, Indonesia, the Philippines and Thailand.
For example, in Northern Thailand, where local communities are suffering from changing rainfall patterns, a project has been set up to support better water management, to enable the community to move from producing one crop a year to two or three.
Mitra says: "Axa brings to CARE financial support and expertise but not yet insurance solutions - this is something Axa and CARE have planned to address in the coming years."
Although there are many uncertainties around climate change, the industry can become a driving force for practical and cultural change.
Source: Post Online | 7 March 2014
