Promoting Climate Risk Reduction through Risk Insurance

Prabhakar SVRK
Prabhakar SVRKResearch um IGES, Hayama, Japan
Climate Risk Mitigation Through Risk Insurance,[object Object],Framing Presentation,[object Object],SVRK Prabhakar and Koji Fukuda,[object Object],Institute for Global Environmental Strategies, Hayama, Japan,[object Object],Presented at Asia-Pacific Policy Workshop on post-2012, IHC, New Delhi. 29-30 Aug 2011.,[object Object]
Past Disaster Trends,[object Object],Global: Number of disasters and economic damage (Prabhakar et al., 2009),[object Object],India: Number of disasters and economic ,[object Object],Damage (Prabhakar et al., 2009),[object Object]
Reasons behind increasing trends of natural disasters,[object Object],Increasing population density in vulnerable areas,[object Object],Increasing number of natural hazards (climate change?),[object Object],Increased reporting of natural disasters,[object Object],A combination of all the above,[object Object],Munich Re (2007): The frequency of hydro-meteorological hazards have increased between 1960 and 2005.,[object Object]
CARE Hotspots,[object Object],Human, social, natural, and financial vulnerabilities projected to 2030 are overlaid in a GIS system.,[object Object],Provides an overview of most dangerous locations in terms of humanitarian crisis for preventive planning and planned response.,[object Object],Care International, 2008,[object Object],Currently available at the global scale. ,[object Object],Need to be developed for smaller decision making level scales.,[object Object]
Differential Impacts of Disasters on Developed and Developing Countries,[object Object],Source: Mechler, 2004,[object Object]
DRR and Climate Change Adaptation,[object Object],Development,[object Object],Complexity,[object Object],How much to mainstream?,[object Object],Catastrophic risk reduction,[object Object],Adaptation,[object Object],Short term,[object Object],Long term,[object Object],Climate change ‘additionality’,[object Object],Source: Klein, 2002,[object Object]
A Two-Pronged Approach for Climate Risk Reduction,[object Object],Non-catastrophic risks: Risks from change of mean state of climate,[object Object],Within the capacity of national systems,[object Object],Local knowledge is useful E.g. Community based adaptation, weather based crop insurance schemes etc.,[object Object],Catastrophic risks: Risks from changes in extremes,[object Object],Need external assistance in terms of finances and experiences,[object Object],Local knowledge often fall short,[object Object],E.g. Global and regional catastrophic risk insurance schemes, adaptation networks,[object Object]
What is Risk Insurance?,[object Object],Transfer the risk for a payment to a company that can hedge the risks,[object Object],Insurance Premium ,[object Object],Policy,[object Object],Insurer,[object Object],Insured (population),[object Object],Indemnify,[object Object]
Risk Insurance,[object Object],Emphasis on risk mitigation compared to response,[object Object],Provides a cost-effective way of coping financial impacts,[object Object],Covers the residual risks uncovered by the other risk reduction mechanisms.,[object Object],Stabilizes rural incomes: reduce the adverse effects on income fluctuation and socio-economic development.,[object Object],Provides opportunities for public-private partnerships.,[object Object],Reduced burden on government resources for post-disaster relief and reconstruction.,[object Object],Helps communities and individuals to quickly renew and restore the livelihood activity.,[object Object],Depending on the way the insurance is designed, the insurance mechanism can address a wide variety of risks emanating from climatic and non-climatic sources.,[object Object],Arnold, 2008; Siamwalla and Valdes, 1986; Swiss Re, 2010,[object Object]
Non-life Insurance Premiums,[object Object],USD Billion,[object Object]
Few examples of Risk Insurance,[object Object],Prabhakar and Fukuda, 2010,[object Object]
Issues with Current Insurance Systems,[object Object],High insurance costs,[object Object],High residual risks,[object Object],Urban areas: Poorly developed risk mitigation options such as structural standards, land use/urban planning etc.,[object Object],Rural/agriculture: Only 35-40% of Indian agriculture is irrigated.,[object Object],Poorly developed re-insurance industry,[object Object],Poor availability of data to assess risks for designing risk insurance systems (e.g. weather data and data on crop loss),[object Object],Cultural and perceptional issues with both people at risk and policy makers,[object Object]
Comparison of various proposals under UNFCCC,[object Object],Prabhakar and Fukuda, 2010,[object Object]
Questions to be Answered in This Session,[object Object],How these challenges can be overcome with the processes and provisions under UNFCCC through the future climate regime?,[object Object],To what extent are the current risk insurance approaches able to reduce risks they are designed to address?,[object Object],What are the challenges faced and to what extent solutions are implemented?,[object Object],What national level policy provisions are necessary for creating enabling environment for greater penetration of risk insurance?,[object Object]
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Promoting Climate Risk Reduction through Risk Insurance

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