The Big Picture - Munich Climate-Insurance Initiative

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The Big Picture - Munich Climate-Insurance Initiative

Insurance and Loss and Damage: The Big PictureWhat can insurance approaches and the insurance industry offer on adaptation?How can they help avoid or reduce loss and damage?What are the limitations?Thomas LosterMCII, Munich Re FoundationBonn, 16 May 2012


The Insured and the Uninsured WorldInsurance penetration worldwide 2012Highly insured( >1,000 US$)Well insured(101 – 1,000 US$)Basically insured(10 – 100 US$)Inadequately insured(


Microinsurance holds Potential to reach 3 Billion PeopleRecent Facts on Microinsurance− Number of insured low-income people has increased to half a billion.India is accounting for 60% of this number.− More than half of microinsurance products are focused on life andhealth, less than 10% cover farms.− "We are still at the experimental stage in offering products that couldcover agriculture.“Sources:Craig Churchill, Microinsurance Network, LuxembourgREUTERS 9 Nov 2010, ILO Press Release, Geneva/Munich, 10th April 2012Munich Re FoundationUNEP FI and MCII L&D Workshop, Bonn5/21/2012 4


Insurance in Poor Countries - Basic NeedsPriority risks in selected countriesSource: Protecting the Poor – A mircoinsurance compendium, edited by Craig Churchill, Munich, Geneva, 2006, page 27Munich Re FoundationUNEP FI and MCII L&D Workshop, Bonn5/21/2012 5


Media – Positive VibrationsHeadlines“Livestock insurance – A chance to outsmart drought?”Index Based Livestock Insurance; Blog; 11.01.2012“Malawi pioneers regional weather index insurance”The Daily Times; Malawi; 7.12.2011“New publication shows index insurance has potential to helpmanage climate risks and reduce poverty”Great News Network, 25.6. 2009“Insurance aims to help herders avoid ‘downward spiral” from drought.”(Alertnet on 30 Nov 2011 at 18:05Munich Re FoundationUNEP FI and MCII L&D Workshop, Bonn5/21/2012 6


Climate Risk Adaptation InsuranceDifferent impacts/scales/productsScale Micro− Microinsurance is growing rapidly, today some 500m people are covered− poor people enjoy different types in all world parts: health, life, funeral etc.− property insurance (home, cattle) in poor countries startedMeso-Scale− Derivatives and index insurance of major interest in a climate change world− In rich countries (USA, Europe) weather, drought, temperature are well known− In the poor world pilots in Asia and Africa; many promising, but no history“Macro”− includes regions and countries, mainly pool solutions and cat bonds:cat bonds only exist in the developed world, pools are understood, too.− Interesting pools exist: CCRIF in the Caribbean, others in Turkey, MexicoMunich Re FoundationUNEP FI and MCII L&D Workshop, Bonn5/21/2012 7


Facts


Climate Change Adaptation and InsuranceNot a silver bullet but an important tool− Insurance mechanisms represent one of many adaptation approaches.− Insurance deals with sudden and unforeseen loss events,the loss magnitude must be calculable.− Often underestimated: potential for prevention measures.Insurance moduleAdaptation regimepreventioninsuranceTier 1 Tier 2Other facets of adaptation regimeMunich Re FoundationUNEP FI and MCII L&D Workshop, Bonn5/21/2012 9


Climate Change Adaptation and InsuranceLimitations of (private) insurance for slow-onset eventsSturm surge versus Sea Level Rise (SLF)GLOF* versus glacier melting− Clear limitations for private insurance for long-term events.− Difficult role when complex phenomena such as climigration are involved.− Other tools/policy more efficient (land use planning etc.)* Glacial Lake Outburst FloodMunich Re FoundationUNEP FI and MCII L&D Workshop, Bonn5/21/2012 10


Climate Change Adaptation and InsuranceExample weather index insurance


Meso-level Index Insurance ProjectsA selection as of November 2011Countryand projectMali, PlanetGuaranteePeriod Index type Claimhistory2011 satellite andarea yieldAggregator ClientsWhat iscovered?yes MFI 176 farmers (f. cooperative) Input credit of farmerHaiti, MICROFonkoze,Swiss Re2011 rain, wind,earthquakeYes MFIs 55.000 credit clients Microcredit of clientsGhana, IIPAC 2011 - weather, rain None Rural banks, Rural banks,(total IIPAC: 1073 farmers)Philippines,CLIMBS,Munich ReIndia, DHANFoundationIndia, PioneerSeeds(discontinued)India, Basix(discontinued)2011- wind, rain(typhoon)2009 weather,rainfall2008 weather,rainfallYesandNoYesNoneMFIFarmermutualSeedcompanyCooperative members,micro enterprisesPeople Mutual farmerassociation, +/- 4000 farmersPioneer seedsBank portfolioMicrocredit of clientsFarmers’ yield lossesFarmers seed input2003 weather None MFI Basix Input credit of farmersSource: K. Morsink 2011 adapted after Morsink et al. (2011) and T. Loster, MRFMunich Re Foundation UNEP FI and MCII L&D Workshop, Bonn5/21/2012 12


Complexity of Microinsurance Productsas seen by the Microinsurance Network (CGAP)Highly complexSimpler−−−−−−Natural disaster insuranceCrop insuranceAnnuities and endowment(retirement provision)Health and disability insuranceProperty insuranceTerm life insurance(payment to beneficiaries on death)Source: Churchil et. al (2006): Protecting the Poor, ILO/MRF 2006Munich Re Foundation5/21/2012 UNEP FI andMCII L&DWorkshop,13


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Weather InsuranceIndex InsuranceAt COP 12 in Kenya (November 2006) John D. Corbettfrom Mud Springs Geographers, Inc. explained at a side event:Technically, a weather index must− Be easily understood and the trigger event for payment be clearly defined.− Take account of crop sensitivity at different growth stages.− Take account of the soil texture on the effectiveness of rainfall.− Be tailored to crop variety.− Define a protocol that reflects actual planting date.− Ensure that the insured pays the price of the spatial variation in risk.− Enable accurate estimation of the probability of the risk event.Munich Re FoundationUNEP FI and MCII L&D Workshop, Bonn5/21/2012 15


Climate Change Adaptation and InsuranceIlliteracy− Convince people who only know about savings.− Tell a farmer after a huge loss that a trigger was not triggered(tell him he gets money even if he had no problem).− Convince a donor that investing in premiums makes more sense.− Explain to a politician what index insurance is.If one of the stakeholders (people insured, policy makers, regulators etc.)does not understand and adopt the principle reputation might be lost foryears or decades*.* Maybe the most important sentence of the presentationMunich Re FoundationUNEP FI and MCII L&D Workshop, Bonn5/21/201216


Index Insurance in the early 21st CenturyMany projects in many parts of the worldSetting− Climate change awareness− Increasing interest in microfinance and microinsurance (buzz words)− Promising models, good modeling, many pilots in very exposed areasConcerns− Data− Outreach− Upscaling− Sustainability.Munich Re FoundationUNEP FI and MCII L&D Workshop, Bonn5/21/2012 17


Warning!Important slide ahead


Insurance and Climate Change AdaptationHow to kill two birds with one stone – great insurance effects− Insurance is raising risk awareness.price tag for risk but also individual understanding− Insurance can strongly influence preventive planning of decisionmakers on country level, community level (e. g. USNFIP, clauses etc.)− Insurance as a tool for fast recovery for countries, regions andindividuals (examples CCRIF ongoing, Allianz Nisha 2008, Kenyalivestock 2011)The effect is huge!Munich Re FoundationUNEP FI and MCII L&D Workshop, Bonn5/21/2012 19


Insurance and Climate Change AdaptationObstacles− Overcome illiteracy (at all ends) and tailor solutions to demand− PPP: different understanding, different languages, still fear of touch− Regulatory issues: understanding at all levels of utmost importance− Different time horizons and sustainabilityMulti-year commitment urgently needed,Transparency needed!Munich Re FoundationUNEP FI and MCII L&D Workshop, Bonn5/21/2012 20


A true story from real life in DRMIt could be so easy…


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Climate Change Adaptation and InsuranceIt could be so easyA framework is needed (top down).Risk management must start at grassroots level (bottom up).One example1. Offer a post disaster recovery program and create a fund(use existing funds or create a new one).2. Communities taking part receive quick funds in case a disaster strikes.However, they can only participate when fulfilling two requirements- raising awareness at community level (people at risk, capacity building)- adopting a DRM strategy (from landuse planning to evacuation plans).3. Leverage through insurance mechanisms. What you get:- professional risk assessment,- tailor-made products and effective administration,- sustainable solutions and a real PPP.Munich Re FoundationUNEP FI and MCII L&D Workshop, Bonn5/21/201225


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