“Just one natural disaster away from losing everything”: how climate risk insurance can help protect the poor, #COP21 part 1

27 Nov 2015

By Catherine Blampied. This is part 1 of a three-part blog series that we’ll publish before, during and after the Paris climate conference COP21: look out for parts 2 and 3 coming soon. RESULTS campaigners do what they do because they share a fundamental belief: people in the developing world are enabled to lift themselves out of poverty if they can access good healthcare, good education, and good economic opportunities. We see these as the three basic building blocks that empower people to flourish through their own hard work. At the same time, the huge and growing threat of climate change puts all these efforts into jeopardy. Extreme weather events such as droughts and typhoons are becoming more common and more severe in their impacts. Climate shocks like these take a disproportionate toll on people living in poverty and vulnerability, the majority of whom – an estimated 2 billion around the world – get their livelihoods from smallholder farming. As a recent World Bank report said: “The poor live in uncertainty, just one natural disaster away from losing everything they have.” Escaping poverty is not a one-way street: as many as 100 million people are predicted to fall back into extreme poverty by 2030 without a major effort to tackle the impacts of climate change.

This is why we’re excited to be restarting our work on economic opportunities (which some of you may remember campaigning on previously) with a strong focus on protecting the poorest and most vulnerable people around the world from the risks of a changing climate through innovative ways of expanding insurance coverage. So what is climate risk insurance and how does it work? Imagine you’re a farmer working in the inherently risky business of smallholder agriculture, living on a precariously low income, and you have just taken out a small loan to purchase seeds and fertiliser for the next growing season. Then imagine after you’ve planted your seeds, your area is hit by a major drought, meaning your crops fail. Not only are you left without any crops and livelihood, you’re also left with an outstanding loan that you now have no means to pay back. This could well be the trigger that plunges you and your family into poverty, forcing you to sell any assets, forgo healthcare or take your children out of school just to survive. Not to mention the fact that the experience of this huge loss will likely make you unwilling to take a chance and take out credit to invest in your farm the next time round, limiting your chance to become more productive and prosperous in the future. But now imagine you were covered by an insurance policy that triggered a pay-out automatically when the rainfall level in your area fell below a pre-defined threshold (i.e. the conditions leading to the drought). This early payment would give you a sense of security and help buffer the shock – allowing you to repay your loan, encouraging you to reinvest in your farm for the next growing season, and enabling you to meet you and your family’s basic needs in the meantime. Climate risk insurance can play a similarly critical role at national level too. For example, through the recently established African Risk Capacity (which was set up with seed funding from the UK and German governments), African governments pay an insurance premium and join a continent-wide pooled risk mechanism. When rainfall in a participating country falls below a certain threshold, this triggers a speedy payout – within 2-4 weeks of the end of the rainfall season – allowing the government to start taking action almost immediately to protect and assist its citizens, such as vulnerable smallholder farmers, before harvest-time and before they feel the brunt of the crisis. This can be a really efficient way to make sure the people who need it are protected, fast. By contrast, international aid efforts in today’s world of multiple humanitarian crises are drastically under-funded, and typically take literally hundreds of days to get through to the people who need them. Evidence from analysis of the African Risk Capacity, shows that for each $1 of early insurance payout, $4.4 of international aid is not needed. The problem is that current insurance coverage is extremely low in most developing countries, with only an estimated 100 million people across the developing world directly or indirectly covered by climate risk insurance. The coverage rate for agricultural insurance specifically is just 0.02% in Africa. There are a number of constraints to scaling up coverage, which we’ll talk about more in the second blog. However, over the past decade the innovation of the types of “parametric” insurance schemes described above (called this because they are designed to respond automatically to weather patterns, such as rainfall, falling outside of established “parameters”) has the potential to be a real game-changer. Climate risk insurance is no magic bullet; that much is clear. It is not appropriate for every situation. And to work effectively, it needs to be integrated into a more comprehensive disaster risk management strategy. But extending insurance coverage, particularly for the poorest and most vulnerable people, is going to be one vital tool in the toolkit of building resilience and helping communities adapt to the growing perils of climate change.

There is now a series of real opportunities for the UK Government to help make this happen – including at the COP21 Paris climate conference starting next week, where world leaders are meeting to agree the first legally binding climate change agreement. Here, the UK and other countries have the opportunity to make an ambitious funding commitment to a new G7 initiative to bring climate risk insurance to 400 million people. Stay tuned for next week’s blog during COP, where we’ll discuss this in more detail. As all eyes look towards Paris for COP21, send a message to world leaders that it is not possible to tackle poverty and inequality without tackling climate change: Join tens of thousands of supporters at the #PeoplesMarch for climate this Sunday, 29th November.

Archive

Subscribe to our newsletter to receive all the latest news and information.

RESULTS UK is a charity registered as RESULTS Education in England and Wales (1015286), a company limited by guarantee (2761858), and a charity registered in Scotland (SC041481).