Download Risk Transfer as - Caribbean Development Bank

Loss and Damage at the UN-FCCC, and
risk transfer as part of the adaptation
toolkit
Dr Simon Young
CEO, Caribbean Risk Managers Ltd
Facility Supervisor, CCRIF
Loss & Damage
• In UN-FCCC-speak, this refers to the segment of the negotiations
focussed on managing the loss and damage which is increasingly
occurring due to climate change
• It includes two main areas, disaster risk reduction and risk transfer
(insurance), and one other area, ‘rehabilitation’ or slow-onset
damage
• It is recognised that while most of the change in the climate is
attributable to Annex 1 countries, it is the developing world which
will bear the brunt of the economic and social costs of increased
loss and damage
• It is an area of the negotiations in which AOSIS and SIDS have
been particularly active due to its recognised importance to the
small island states of the world
• However, one of the sticking points in a global deal on adaptation
has been the creation of an ‘international insurance mechanism’ for
climate change impacts, and also the linking of L&D to rehabilitation
and compensation
Progress on L&D
• In a compromise in Cancun, a work programme on
L&D was mandated, to report back to CoP-18 with
tangible, implementable ideas on how best to include
DRR and insurance in an international climate change
deal (with rehabilitation likely taking a back seat)
• Ideas have been collated and will be formulated into a
work programme under the Subsidiary Body for
Implementation, one of two SBs under the Convention
(the other being ‘Advice’), to be mandated (hopefully)
in Bonn next month
• Our region has been and will continue to be very
active in this area, particularly because CCRIF has
been seen and used as an example of how a regional
insurance mechanism addressing catastrophe climate
risks can actually work in practice
An economic framework for
adaptation
• A national economics of climate adaptation (ECA)
assessment provides a quantitative foundation to
development of a comprehensive, holistic adaptation strategy
• ECA can be applied at various levels:
– Overview and foundation for formulating the business case for
adaptation investment at the country level
– Drilling down to inform sectoral and project-specific design and
implementation
• However, the technical nature of the process requires a
regional approach to champion the implementation of highlevel studies and building of capacity to complete the drilldown work
• Both CCRIF and ECLAC/CCCCC have been active in this
area and CDB should play a coordinating and
intermediating role to assist countries and the region to
attract adaptation funding
How can ECA help?
An holistic adaptation strategy
• Risk Management comes first: Disaster risk reduction is the
top priority and the most cost-effective way to avert losses by
reducing exposure
• Risk Transfer can help: Risk reduction is only more costbeneficial than risk transfer up to a point, and some risk,
particularly catastrophe risk (which forms a substantial part of
the region’s risk profile), cannot be adapted to
• Residual Risk must be recognised and funded: Even with
a perfectly executed adaptation strategy, some risk will
remain; mainly long-term, slow-onset risk which will require
some accumulation of funding to manage at the required time
Strategies to reduce climate risk
• Increase infrastructure resilience (e.g. enhanced building
codes, hardened coastal defences)
• Develop new infrastructure to support changed lifestyles
(e.g. drainage/irrigation networks for agriculture)
• Enhance environmental protection mechanisms (e.g.
coral reef preservation, mangrove restoration)
• Support lifestyle changes to cope with a changed climate
regime (e.g. changing agricultural practices/crops)
• Include climate change in EIA alongside natural
hazard risk assessment (championed by CDB) to
help drive more climate-resilient development
Risk transfer as an adaptation tool
• At the national level, risk transfer complements risk
reduction in managing risks which cannot costefficiently be reduced
• It can also provide a secure umbrella beneath which a
risk reduction strategy can be fully implemented with
lower chance of being negatively impacted by natural
disasters
• At the sub-national level, risk transfer products
enhance access to credit for individuals and investors,
which drives economic development, which in turn
increases climate resilience
• Index-based weather insurance has the ability to reach
the poorest and most vulnerable in a fair and equitable
way, something traditional insurance is not able to do
Risk transfer in action
• CCRIF has paid out over $32 million in 4 years, including $17
million after Tomas, half dispersed within a week and the second
half after 2 weeks
• CCRIF is just about to launch a project funded by the German
Environment Ministry, aimed at demonstrating the catalytic
abilities of a regional risk pool such as CCRIF in creation of subnational index insurance mechanisms serving the most
vulnerable. One particular focus will be index-based weather
insurance for the agricultural sector
• A public-private partnership has recently been launched,
supported by DFID, Swiss Development Agency and CDB (tbc)
which offers an innovative insurance product to cover catastrophe
risks for micro-finance borrowers
• Known as MiCRO, the first product is in place and covering
almost 50,000 MFI clients in Haiti against rain, wind and
earthquake perils