Another key hurdle for climate risk insurance is that as of now, there’s no comprehensive data base which provides critical data needed for insurers to draw on. Information like weather forecasts as well as the valuation of their economic and human impacts will be essential not only for creating relevant insurance solutions, but also to avoid the lock-in of climate risks into current development efforts and to preserve recently achieved development gains. A collaborative, public-private partnership will be needed to overcome this issue.
“In many cases insurers do not have access to the information needed to design insurance products, while the public sector either has it available or is in the position to generate it,” says Markus Stowasser, Allianz Re, NatCat. “So for example, if you want to build a flood risk model, data is needed which sometimes only local governmental offices provide – either for a high price, or not at all. “Enabling the insurance industry to use the information that the public sector has access to can leverage the collaboration.”
There are other reasons why a collaborative approach is necessary. Public programs respond to shocks such as natural catastrophes by providing compensation after the fact, but fail to create incentives for proactive action. “Private-public collaboration can explore possibilities to develop insurance cover that is conditional on adaption measures, which will also help to keep risk premiums at an acceptable level,” says Stowasser.
Building trust is also an issue. Insurance is a promise for a later payment against an upfront premium. In parallel, the ability of farmers to understand and discuss a product is key for demand, explains Stowasser, so partnering with organizations and local public offices that have already built trust is essential.
At the recent UN Financing for Development Conference in Addis Ababa, the overall theme of the conference was around how to engage the private sector into the economic development of developing markets. Maidou, one of the participants, is hopeful that the conference signals a sea change in how business and the public sector work together on crucial environmental and social issues. In discussions in Addis Ababa, UN Secretary General Ban-Ki Moon noted that it was the first time over 800 people from the private sector joined a UN conference. “It is the beginning of a fundamental shift,” Maidou says.
And that fundamental shift is crucial, as there is a lot of work to be done to meet the G7 goals – not only for climate risk insurance, but for the agreed target of keeping global temperature increases below 2°C.
“Given the amount of finance required in a short space of time, resources will need to be mobilized from both public and private sources,” says Simone Ruiz-Vergote, Head of Climate Advisory and Projects, Allianz Climate Solutions GmbH and Member of the Board of the Munich Climate Insurance Initiative.
“While a crucial part of the picture, green investments can only mitigate future climate risks. The conference recognized that insurance solutions can also contribute to responding to the consequences of a changing climate. The insurance industry has the tools to assess and manage these risks; the readiness to write these risks will be crucial."