Insurance experts set out vision for climate adaptation scheme

World leaders are being urged to consider plans for a $5bn (£3.5bn)-a-year global climate change insurance scheme that would provide developing countries with cover against the increased risk of climate change-related droughts and extreme weather events.

The proposals were set out by the Munich Climate Insurance Initiative (MCII), a non-profit coalition of insurance firms, NGOs and research bodies, at last week's climate change conference in Copenhagen and are to be presented to negotiators involved in talks to agree a successor to the Kyoto deal on climate change later this year.

Under the proposals, rich countries would use part of the funds they have pledged to help developing nations adapt to climate change to provide them with insurance cover against extreme weather events such as typhoons and floods.

Speaking to BusinessGreen.com, Dr Koko Warner of the UN University, who worked on the proposal, said that the insurance sector had the potential to provide a cost-effective means of minimising some of the risks associated with climate change.

"A global climate change insurance pool would allow you to spread the risks faced by all developing countries," she said, adding that taking out reinsurance against the fund would insure its solvency even in years when multiple disasters lead to numerous claims.

The MCII estimates that the fund would require rich countries to pay in about $5bn, but would provide developing nations with quicker payouts in the event of disasters than current international aid arrangements, and would also be subject to less corruption.

Warner added that such a scheme would also provide the insurance firms that managed the fund with a financial incentive to help developing nations enhance their risk management expertise and invest in climate-resistant infrastructure.

In addition to a global insurance pool, the proposals also set out plans for an expansion of micro-insurance schemes designed to provide businesses and individuals in the developing world with access to insurance cover.

Richard Leftley, president and chief executive of the Micro Insurance Agency, a company dedicated to providing policies to workers in the developing world, said that micro insurance could play a critical role in accelerating development and enhancing agricultural yields in many countries.

"Many farmers cannot get credit, which means they cannot buy the seeds and equipment they need and are locked into very low yields," he explained. " Increasingly, there are micro-financing schemes that will provide loans, but they can only offer those loans if you can take out the weather risk that the crops could fail – insurance is the final cog in the machine."

The Agency offers weather index insurance to farmers in Malawi and the Philippines that provides farmers with payouts when rainfall drops below a certain level and crops are threatened.

The company is planning to unveil similar policies in a number of countries in the coming months, including the launch of weather index insurance in India this June. However, Leftley said that greater investment in weather stations in the developing world was required to underpin wider the rollout of micro-insurance schemes.

"It is not very expensive to put in the infrastructure that is required and it could have a major impact in terms of agricultural yields and climate resistance," he said.