The European Commission has this week announced that it is to provide €24.5m (£20m) in funding to a new World Bank-backed scheme designed to allow developing countries to take out insurance against the increased risk of climate-change related storms and extreme weather events.
The move makes the Commission the first donor to the Global Index Insurance Facility (GIIF), a scheme set up by the World Bank's International Finance Corporation (IFC) and intended to make it easier for African, Caribbean and Pacific countries to access insurance cover for extreme weather events.
The facility aims to make it easier for participants, including small businesses, to access payouts in the aftermath of natural disasters as payments are triggered as soon as a pre-determined index, based on centimetres of rainfall, variation of temperature, or wind-speed for example, is reached.
The approach is expected to prove more effective than traditional insurance cover for developing countries because it does not require detailed and costly damage assessments and is based on easily verifiable indices, limiting the likelihood of payment disputes. As a result insurers enjoy lower costs and payouts can be made more swiftly to affected firms and populations.
Louis Michel, European Commissioner for development and humanitarian aid, said the new facility should help developing economies better adapt to the increased frequency of extreme weather events brought about by climate change.
"In times of climate change when developing countries are ever more exposed to weather-related threats the Global Index Insurance Facility will help the population in ACP countries to reduce their vulnerability to external shocks and natural disasters and thereby support their livelihoods," he said.
The World Bank is hoping that the approach can provide a model for the insurance industry to emulate.
Lars Thunell, chief executive of the IFC, said the aim of the facility was to "promote the development of innovative insurance solutions to address weather and catastrophic risks that disproportionately affect people in low-income and rural households in developing countries".
The news comes just days after a report from the Climatewise coalition of investors claimed the industry was not doing enough to exploit the opportunities presented by climate change.
It argued that many insurers were still failing to consider climate change risks when drawing up corporate insurance policies and were missing out on opportunities to develop new forms of cover for carbon markets, renewable energy technologies and forestry projects.
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