Page - 330 - in Loss and Damage from Climate Change - Concepts, Methods and Policy Options

330 L.Schäfer et al. 13.4 TheNeedforComprehensiveRiskManagement andtheLimitsof Insurance:SevenPrinciples toDesignEffectivePro-poorInsuranceProducts Section threeelaboratedonhowdecisionmakerscanuse insurance tools toexplore andmanage adaptation frontiers. However, in the context of comprehensive plan- ningandpre-emptiveactivities tomanageclimate risks, insurance isnotauniversal remedy for all types of climate impacts, risks, and vulnerabilities associatedwith climate change. It has limitationswith regard to its applicability for some type of risks as it cannot cover all losses and climate changemay pose a threat to insura- bility.These limitationshave led tooneof themost important insights for how this tool can contribute to addressing the adverse effects of climate change: Insurance should always be embedded in a comprehensive climate riskmanagement system with a focus on risk reduction, and ex-ante planning. A combination ofmeasures that include insurance can reducemaladaptation, and reduce immediate losses and long-termdevelopment setbacks from adverse climatic impacts. But beyond com- prehensive riskmanagement, there are other factors that need to bemet in order for insurance tools toeffectively support the riskmanagementeffortsofdeveloping countries,a teamfromtheMunichClimate InsuranceInitiative (MCII) found.After havingdealtwith the limits of insurance, this sectionwill describe these factors in detail. 13.4.1 Limitsof Insurance Experience revealsmultiple limitationsof traditional formsof insurance(Hoffetal. 2005): it is not applicable for all types of risks, does not prevent or reduce the likelihoodofdirectdamageandfatalities fromextremeweathereventsanddoesnot cover all losses. Potential un-insurability associatedwith increasing frequency and magnitude of extremeweather events poses an additional limitation.Moreover, it is not always themost cost-effective or affordable approach and actor’s behaviour towards lowprobability, high impact events canmake the application of insurance approacheschallenging. Insurance IsNotanAppropriateMeasure forAllTypesofRisks Insurance options can support adaptation and risk resilience for extremeweather events, but are not appropriate for many, usually slower-onset, climate-induced impacts, that happenwith high certainty under different climate change scenarios. The losses from long-term, foreseeable risks, such as sea-level rise, desertification andthelossofglaciersandothercryosphericwatersources,areestimatedtobesub- stantial in thefuture(IPCC2012).Evenforweather-relatedevents, insurancewould bean ill-advised solution fordisastrousevents that occurwithveryhigh frequency,