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328 L.Schäfer et al.
Thegivenexamplesclearlyillustratehowquickandsufficientpayoutsarekeyfor
insurance to realise its potential within a contingency strategy.A poorly designed
insurance product that neither covers a sufficient amount of the damage nor pro-
vides incentives for risk reductionbehaviourmight lead to perverse incentives and
increases the risk of people slipping (back) into poverty or staying poor.Although
wefindsufficientexamplesforquickpayouts, therearealsocases tobefoundwhere
timelyfinancecouldnotbeprovidedbyinsuranceproductsdue todifferent reasons.
Moreover,onthemacrolevel,afastpayout toagovernmentdoesn’tnecessarilycon-
vert in timely support for the ultimate beneficiaries, being reliant on slowexternal
processes, forexampleasedatehumanitariansystem.Hence,constantlymonitoring
errors andchallenges aswell as learning fromthemto improveprocesses is crucial
for the successof risk transfer tools like insuranceaspart of contingency strategies
in the long-term.
Insurance forLowFrequencyandModerate toHighSeverityRisks
There are different layers of risks that riskmanagementmeasures need to respond
to.Anefficient riskmanagement system involves assigning an instrument or set of
instrumentstoeachlayer,consistentwiththeselectedstrategy(reduction,retentionor
transfer). Financial instruments, in combinationwith riskprevention and reduction
measures, should be selected on the basis of frequency and severity of disasters.
Thissuggests that forweather-relatedriskswhichhappenoften(highfrequency)but
whichare less serious (lowseverity), preventative and risk reductionactivitiesmay
be themost cost-effective. The costs of preventing these events are typicallymuch
lower than the losses thatwouldoccurwithout investments inpreventionmeasures.
Alternatively,preventionmeasuresforhigh-impact, low-frequencyeventscanbefar
costlier with respect to the losses prevented. Thesemore severe and less frequent
risks, which cannot be reduced in a cost-effectivemanner, could be transferred to
privateandpublic insurancemarkets.Evidencefromdevelopedcountriesshowsthat
insurance instruments have been effective in providing financial compensation for
losses from extreme events to avoid the distress caused by the financial aftermath
withoutfinancialprotection(Arentetal.2014).However, it is important tonote that
despite adaptation strategies, climate changemay bring some residual riskswhich
cannot be transferred to the insurancemarket cost-efficiently (Warner et al. 2012).
Governments also need to adopt approaches to address these residual risks, “the
losses and damages that remain once all feasiblemeasures (especially adaptation
andmitigation) have been implemented” (ibid). The followingFig. 13.3 illustrates
a risk-layering strategyon the basis of the frequency and severity of the event (see
alsochapterbySchinkoet al. 2018).
Loss and Damage from Climate Change
Concepts, Methods and Policy Options
- Title
- Loss and Damage from Climate Change
- Subtitle
- Concepts, Methods and Policy Options
- Authors
- Reinhard Mechler
- Laurens M. Bouwer
- Thomas Schinko
- Swenja Surminski
- JoAnne Linnerooth-Bayer
- Publisher
- Springer Open
- Date
- 2019
- Language
- English
- License
- CC BY 4.0
- ISBN
- 978-3-319-72026-5
- Size
- 16.0 x 24.0 cm
- Pages
- 580
- Keywords
- Environment, Climate change, Environmental law, Environmental policy, Risk management
- Categories
- International
- Naturwissenschaften Umwelt und Klima