Report on strategic policy options on innovative policies for mainstreaming adaptation through pro-active disaster financing and prevention

Linnerooth-Bayer J & Mechler R (2009). Report on strategic policy options on innovative policies for mainstreaming adaptation through pro-active disaster financing and prevention. Deliverable D-P3b.4, ADAM (Adaptation and Mitigation Strategies: Supporting European Climate Policy)

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Abstract

This document reports on innovative options for mainstreaming adaptation in developing countries with pro-active financing instruments that hedge risks from climate-related disasters. It examines recent experience with insurance and other risk-financing instruments in developing countries, informed by experience in developed countries, to provide insights on the effectiveness of insurance for reducing economic insecurity. Insurance and other risk-financing strategies are viewed in the overall context of risk management, including the prevention of losses as well as financing the recovery process. Specific examples of publicprivate insurance programs for households/businesses, farms and governments are described, including their limitations, especially in light of recent post-Katrina experience in the US and the recent financial crisis. By examining the costs, benefits and risks of public-private risk-financing programs, insights are provided on the effectiveness of insurance as a mechanism for providing economic security to vulnerable communities and governments.

The document goes beyond suggesting options for development organizations, IFIs and donors for revamping disaster aid to include pre-disaster financing instruments. In addition, we examine the case for insurance mechanisms as part of the post-Kyoto adaptation regime. The Bali Action Plan specifically calls for "consideration of risk sharing and transfer mechanisms, such as insurance" as a means to address loss and damage in developing countries particularly vulnerable to climate change. We address two fundamental questions: whether climate insurance programs should be part of an international adaptation strategy, and if so, how? Our discussion suggests that there is a promising and legitimate role for insurance mechanisms in an adaptation regime. We draw this conclusion in full recognition that insurance is not appropriate in all contexts, and that it must be viewed as only part of a comprehensive risk-management program. The challenge then becomes how developed countries can provide support to promote sustainable, affordable and incentive-compatible insurance programs for vulnerable households, small- to medium-size enterprises (SMEs) and governments, without crowding out private sector involvement. In meeting this challenge, this paper concludes by presenting a proposal for a two-pillar (prevention and insurance) international risk-management strategy, as part of an adaptation regime a proposal that has recently been put forward by the Munich Climate Insurance Initiative (MCII).

This work builds on ADAM Deliverable A.2.6., Report on identified developing country regions for study of novel development assistance options, and characterization of risk profile, as well as on an ADAM expert workshop on Insurance Instruments for Adaptation to Climate Risks, organized jointly by the IIASA, Munich Re, the German Agency for Technical Cooperation (GTZ) and The World Bank, which took place at IIASA in Laxenburg, Austria, on Sept. 24-5, 2007. The workshop provided a forum for participants from the climate-change, development and donor communities, NGOs, academics and insurers to share ideas and experiences with insurance-related instruments as a strategy for adapting to climate variability and change. This exploratory meeting identified opportunities and constraints for supporting risk pooling and transfer in the developing world both within and outside the post-Kyoto process.

Item Type: Other
Research Programs: Risk and Vulnerability (RAV)
Bibliographic Reference: Deliverable D-P3b.4, ADAM (Adaptation and Mitigation Strategies: Supporting European Climate Policy)
Depositing User: IIASA Import
Date Deposited: 15 Jan 2016 08:42
Last Modified: 20 Jan 2016 16:45
URI: http://pure.iiasa.ac.at/8996

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