Climate Risk Insurance Gains Momentum on Paris Sidelines

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By Dean Scott

Dec. 3 — How to use an all-too-familiar tool long used by homeowners and car owners—insurance—to better shield populations in countries vulnerable to climate change impacts got an unexpected moment in the sun at the Paris climate summit this week.

President Barack Obama's meeting with representatives from small island nations yielded a U.S. pledge of $30 million to support what is still a fledgling effort to use insurance to protect vulnerable populations from Pacific nations to Central America and Africa.

The funding will support or expand insurance initiatives under three regional efforts: the Pacific Catastrophic Risk Assessment and Financing Initiative, Caribbean Catastrophic Risk Insurance Facility to cover Central American countries and African Risk Capacity program.

Obama's Dec. 1 pledge, unveiled before he and more than 150 world leaders departed Paris to make way for negotiations toward a global climate accord, builds on a June pledge by the Group of Seven leading industrialized economies to extend such coverage by 2020 to 400 million of the world's poorest and most vulnerable people exposed to climate impacts.

Expanding the use of climate insurance isn't a hot topic for negotiators at the Nov. 30-Dec. 11 Paris talks, where they hope to conclude with the first climate accord under which developed and developing nations alike commit to actions on climate change.

But the draft text of the deal being readied for the final week of negotiations beginning Dec. 7 refers to climate risk insurance as one tool to address the loss and damage already occurring in vulnerable nations from emissions largely put in the atmosphere by industrialized nations.

Further Research Needed on Climate Insurance

Specifically, the language calls for further research on the climate insurance, including a formal work plan and a “clearinghouse for risk transfer” to serve “as a repository for information on insurance and risk transfer” to help the nearly 200 nations develop and implement comprehensive risk management strategies.

Whether that loss and damage language survives in the final Paris deal is a key issue at the 2015 UN climate summit; the U.S. and many other developed nations oppose any reference that would imply they should be held liable for such impacts.

But the U.S. pledge underscored increasing interest in exploring the use of insurance against climate risks, an approach being embraced by insurers such as Swiss Re; on its website, the insurer now boasts that managing climate and disaster risk through insurances is today “part of Swiss Re's DNA.”

But Obama's Dec. 1 meeting with leaders of small island nations, including the Marshall Islands, St. Lucia, Barbados and Papua New Guinea, and his $30 million climate insurance pledge was clearly designed to generate good will from islands facing potentially catastrophic climate impacts, including eroding coastlines related to rising sea level.

Obama Calls Himself ‘Island Boy.'

Obama in the meeting even referred to himself as a former “island boy” who spent childhood years in Hawaii and Indonesia to show his familiarity with their plight.

“As an island boy, [Obama] understands the unique challenges we face,” Marshall Islands President Christopher Loeak said after the meeting. Loeak said the meeting “was a chance to talk, at a very personal level, about how vulnerable we are to climate impacts and that we all need to work together to tackle what is now the gravest risk to humanity.”

Small island nations allied with 100 other vulnerable nations also say the Paris deal must include a stringent 1.5 degrees Celsius global temperature goal to protect against dangerous climate impacts, more stringent than the 2 degree C (3.6 degrees Fahrenheit) rise beyond preindustrial temperatures negotiators have been debating since the 2009 Copenhagen talks.

Christiana Figueres, who oversees the United Nations climate secretariat coordinating the Paris climate talks, said Obama's $30 million insurance pledge threw the spotlight on what promises to be an innovative tool to help countries most affected by rising global temperatures linked to increasing greenhouse gas emissions.

“That was a very interesting announcement by the United States,” Figueres said at a Dec. 2 press conference at the Paris talks.

“I do think there has been a growing understanding over the past 24 months perhaps that particularly innovative insurance schemes can be a very helpful instrument for long-term loss and damage—and the conversation is moving in that direction,” she said.

A Change in Atmospherics?

For now, Figueres said, climate risk insurance is likely to remain only “a small part of the solution because the fact is, the insurance sector as a whole [understands] that they are currently prepared for extreme weather events but not necessarily prepared for climate change,” she said. But insurers are “beginning to move forward with more innovative instruments that are going to be helpful to deal with the macro-type risk that we have now,” she said.

The discussion of climate insurance is linked to one of the more difficult issues negotiators are grappling with in Paris: whether developed nations should be held responsible for losses and damages related to climate impacts largely caused by the emissions of industrialized nations.

The U.S. is resisting any language that would presume developed nations would be held liable for such damages and thus be required to compensate affected nations, and that debate is “one of the big crunch issues” still dividing the U.S. and small island states at the Paris talks, according to Alden Meyer, who is tracking the Paris negotiations for the Union of Concerned Scientists.

“The good news though is I think the atmospherics have shifted around that a bit,” Meyer said, adding that the meeting between Obama and island nation leaders “may be [one example] where leaders' conversations were particularly useful” at the Paris talks.

‘Some Bonding' Seen

“There was some bonding there and I think resonance in the room about the concerns” small island nations have, he said.

But insurers such as Swiss Re are increasingly recognizing that insurance could be a sort of last line of defense for countries that are already struggling to keep up with climate impacts.

Beyond the insurance industry, the benefits of using an insurance-based approach—which similar to homeowners and car insurance simply pools the risk of a broad population through premiums—is also being closely studied by environmental and other nongovernmental groups.

Andrew Deutz, the Nature Conservancy's director of international government relations, said only a few decades ago the key climate risk that worried insurers was the potential for government regulation—the risk of added regulatory burdens.

“We used to think of the insurance industry as the poster child for staid and boring. It's becoming the whiz kid of financial innovation for climate change,” Deutz told Bloomberg BNA Dec. 3.

‘Parametric' Insurance Offered

“But Swiss Re and others began to see climate change as a risk to their investments” and began offering insurance products, including “parametric” insurance designed to protect those vulnerable to “certain triggering events”—heavy rainfalls over a certain amount, say five inches, or severe weather triggering wind speeds of a certain velocity, say 100 miles per hour.

A Germany-based group helping to implement the G-7's June pledge to get climate risk insurance in the hands of 400 million of those most vulnerable to climate impacts is slated to report on its review of technical hurdles to the effort at a Dec. 4 press briefing at the Paris climate summit. The Munich Climate Insurance Initiative has conducted 30 interviews with insurance experts to explore “what conditions are needed to reach poor households with climate risk insurance effectively,” the group said.

To contact the reporter on this story: Dean Scott in Paris at

To contact the editor responsible for this story: Greg Henderson at

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