At the opening of the COP21 climate talks in Paris on Monday, President Barack Obama of the United States and Ban Ki-Moon, Secretary-General of the United Nations, pledged to elevate the role of the insurance industry in protecting the more vulnerable nations against the impacts of climate change.
Insurance and reinsurance is a recurring topic in discussions over climate change and related environmental disasters, with Lloyd’s of London recently estimating that over the next decade, almost $4.56 trillion is at risk because of climate-linked catastrophes, with a huge insurance gap in emerging markets contributing to this figure.
While emerging markets across Asia, Africa, and Latin America contribute 40% to global GDP, they only represent 16% of global insurance premiums, suggesting that these markets are highly underinsured.
In a bid to tackle this shortfall, UN Secretary-General Ban Ki-moon launched an initiative that aims to strengthen the climate resilience of the world’s most vulnerable countries and people.
Insurance is a key focus of the UN Secretary-General’s Climate Resilience Initiative — Anticipate, Absorb, Reshape — will aims to help address the needs of the nearly 634 million people, or a tenth of the global population who live in at-risk coastal areas just a few meters above existing sea levels, as well as those living in areas at risk of droughts and floods.
Moon said that the world is now experiencing a strong El Niño event, which could place as many as 4.7 million people at risk from drought in the Pacific alone, so the initiative aims to bring together private sector organizations, governments, UN agencies, research institutions and other stakeholders to scale up transformative solutions.
To start with, the initiative will support the work of partners, such as the Africa Risk Capacity, to ensure that by the time the new climate agreement enters into force in 2020, over 30 countries are provided with $2bn in coverage against drought, flood and cyclones, including $500m in adaptation financing. Over 150 million Africans will be indirectly insured, the UN representative said.
WFP and Oxfam America, with support from reinsurance company Swiss Re are already helping 31,000 vulnerable rural households increase their food security by integrating disaster risk reduction, micro-insurance, livelihoods diversification, credit and savings into productive safety net programmes. Over the next ten years, the programme aims to reach an additional 500,000 farmers in 10 countries, said Moon.
UNEP’s Principles for Sustainable Insurance (PSI), the largest collaboration between the UN and the insurance industry, has a global membership approaching 100 organizations, including insurers representing 20% of world premium and $14tn in assets. PSI will create a Sustainable Insurance Policy Forum to scale up policy progress by insurance regulators in addressing climate and sustainability risks, Moon explained.
During his keynote, Obama hinted that the need to put in place insurance, reinsurance and risk capacity to protect the most vulnerable is becoming increasingly urgent.
“This summer I saw the effect of climate change first hand, in our northernmost state – Alaska -- where the sea is swallowing villages and eroding shorelines, where permafrost thaws and the tundra burns, where glaciers are melting at a rate unprecedented in modern times,” Obama said. “This is a glimpse of our children’s future if we do nothing to address it,” he said.
“That future is not one of strong economies or one where fragile states can find a footing, that future is one we have the power to change right now but only if we rise to this moment.”
Obama said that America “recognises its role in creating the problem” of climate change, but also its responsibility to “do something” about it. Speaking about investment ready to support clean energy initiatives and alleviate the impact of climate change, Obama said there are “hundreds of billons of dollars” of investment ready to deploy to countries around the world “if they get the signal we mean business this time”.