Page - 29 - in Loss and Damage from Climate Change - Concepts, Methods and Policy Options

1 Science forLossandDamage.FindingsandPropositions 29 insuredparticipateinadisasterpoolaccordingtotheirriskclassandpayarisk-based premium.Thus, thecommercial insuranceapproach,unlesssubsidisedorotherwise supported,doesnot share riskbeyond theat-risk insuredcommunity. This stands in contrast to most micro-insurance and regional insurance pools, whichforthemostpartreceivesubstantialsupportfromtheinternationalcommunity. Supportappearstobeincreasinglybasedontheconceptofsolidarity,consistentwith thehumanitarianprinciplesunderlyingdevelopmentassistance,andnotonattribution or responsibility forclimatechange impactsexperiencedbyvulnerablecountries.A commonchallengewith the solidarityprinciple,which features subsidies andother support to reduce premiums, is its failure to incentivise policyholders to reduce theirrisk.Inmeetingthischallenge, internationalfinancial institutions,development agenciesandotherdonorswillneedtoreconcilethecontendingequityandpreventive objectives in their supportof climate insuranceprograms. Twoexamplesof insurance instruments serving thepoor, theAfricanR4micro- insurance programand theAfricanRiskCapacity (ARC) regional insurance pool, combine these goals.Neither is a commercial insurance enterprise; neither is fully characterisedbyrisk-basedpremiumsunderlyingtheprincipleofmutuality;andboth are highly subsidised. TheR4 program’s success has largely been attributed to its closeconnectionwithpublicsafetynetprogramsintheparticipatingcountries,while ARCrequiresmembergovernmentstodevelopdisbursementplanstoensurethat the most vulnerable parts of the populationbenefit from themacro scheme.Moreover, ARC’s innovativeExtremeClimateFacility (XCF)programmayadditionallybring in theconceptofaccountability,motivatedbyaperceivedethicalor legalobligation for compensating those experiencingclimate-attributed losses anddamages, linked tochangesinobservedextremeweatherintheregion(Linnerooth-Bayeretal.2018). Ingeneral terms, insuranceisapre-arrangedcompensationmechanismfor losses incurredandcanbeofferedbybothprivateandpublicactors.Publicrelieforcatastro- phefundsserveasimilarfunction,whileneithercollectingpremiumsnor(typically) estimating risks.Many countries in the world have contingency funds to support victimsof disasters. InBangladesh, there is debate onwhether to set up a national mechanism that would reimburse climate-related losses incurred by farmers and households that go beyond their adaptation possibilities (for example, if flooding pushes people to leave their homesteads or drought renders farmingnot profitable) (Haqueet al. 2018). In such a context, insurance in awider sense (including national compensation pools)may innovativelybeusedas anavigational tool for exploring the adaptation frontiers(broadlociaroundadaptationlimits).Suchexplorationmayinvolve:(i)sig- nallingthemagnitude,location,andexposuretoclimate-relatedrisksandcaseswhere adaptation limits are approached or breached; (ii) supporting actors tomove away fromadaptation limits through improvedex-antedecisionmakingand incentivising risk reduction andadaptationbycreating amore certain environment for decisions onclimateresilientdevelopment;and(iii)enablingactorswithaccess toappropriate riskfinancingmeasures toremaininthetolerableriskspace.Onepropositionis thus toembedclimateinsuranceandotherrelatedinstrumentsinacomprehensiveclimate