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Disaster Risk Reduction and Insurance: the Munich Climate Insurance Initiative

Koko Warner

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Parties and observers to the UNFCCC have tabled proposals to include disaster risk reduction and insurance approaches in a Copenhagen Agreement. The Bali Action Plan calls for “consideration of risk sharing and transfer mechanisms, such as insurance” as a way to address loss s and damage in developing countries that are particularly vulnerable to climate change.

The Action Plan strengthens the mandate to consider insurance instruments as set out by Article 4.8 of the UNFCCC and Article 3.14 of the Kyoto Protocol. Yet if insurance instruments are to be included in the post-2012 adaptation regime negotiations in Copenhagen, the potential role of risk-pooling and risk-transfer systems must be firmly established.

The Munich Climate Insurance Initiative (MCII), hosted by the UNU Institute for Environment and Human Security (UNU-EHS) together with partners such as research institutes, international financial institutions, insurers and adaptation experts, has developed a proposal to realize a climate risk management module which includes risk reduction and insurance. This proposal is currently under consideration for inclusion in the Copenhagen Agreed Outcome.

The MCII proposes a climate risk management module with two pillars — disaster risk reduction and insurance — as part of a wider adaptation strategy. Together these two pillars tackle risk at low, medium and high levels.

The disaster risk reduction pillar prioritizes reduction of human and economic losses. The insurance pillar has two tiers: a) a climate insurance pool that would absorb a predefined proportion of high-level risks of disaster losses in vulnerable non-Annex 1 countries; and b) a climate insurance assistance facility to provide technical support and other types of assistance to public-private and private insurance systems (e.g. micro-insurance) that provide cover for the middle layers of risk in these countries.

The module would be paid for by the international community. Payment of the prevention and the insurance pillars will be based on the principles of responsibility and respective capability under whatever formula is agreed on — Parties have suggested alternatives — but costs would be borne totally or mainly by developed nations. This structure would meet the principles set out by the UNFCCC for financing and disbursing adaptation funds, provide assistance to the most vulnerable and include private market participation.

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Page last modified 2019.04.16.

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