Page - 502 - in Loss and Damage from Climate Change - Concepts, Methods and Policy Options

502 J.Linnerooth-Bayeret al. fromEthiopia’sProductiveSafetyNetProgramandtheWorldFoodProgramme.An innovativemicro-insuranceprogramforherdersinMongoliaisaffordableandviable toinsurersduetoits layeredsystemofresponsibilityandpayment, includingherders (whoretainsmall lossesorthelowestrisklayer), theprivateinsuranceindustry(risk- basedpremiumpayments for themiddle layerof risk)andtaxpayers (for thehighest risk layer). In addition to subsidies, micro-insurance is typicallymade affordable by greatly reducing the cover offered.Amicro-insurance program inBangladesh, Proshika, that insures savings against natural disasters limits claims to twice the amount in the client’s savings account (Mechler et al. 2006). Similarly, a micro- insuranceproject inMalawiwasmadeaffordablebylimitingcover to thecostof the hybridseeds,whichprotects thebanksagainstdefaults for their seed loans,butdoes notprotecthouseholdsagainstdrought losses (Linnerooth-Bayeret al. 2009). Theextensive support formicro-insurance falls thus solidlyunder the insurance principleof solidarity,where contributions to thepool aremade, not in accordance withtherisksthatapplicantsbringtothepool,but typicallyaccordingtotheirability topay thepremium.Climate-attributed impacts and riskswill likely continue tobe framed as a humanitarian issue invoking solidarity, and not as an issue invoking accountabilityor liability. 21.5.3 ExperienceofRegional InsurancePools forEquitably Sharing theImpactsandRiskBurden The question addressed in this section is to what extent the regional insurance pools(CCRIF,ARCandPCRAFI)providetheirmemberswithanequitablecurative response to climate-attributed losses and damages, keeping inmind that the pools providecover togovernments,which in turn (and invaryingdegrees)providepost- disastersupport tovulnerablehouseholds, farmsandSMEs.By‘equitable’weagain refer to the threeprinciples relevant to insurance:mutuality, solidarityandaccount- ability.Weask, thus,whopaysthepriceformembershipintheriskpools,andbased onwhichequityprinciple? All pools have received donor support, mostly through capitalisation, payment of operational expenses, direct premium support or capacity building.While the premiumsare therefore less thanwouldbe requiredwithout outside support, in the caseofARCandCCRIFtherelativepremiums(theproportioneachmembercountry pays to the pool) tend to bebasedon risk levels (i.e., there are no cross subsidies). Thepoolsarethusbasedonsolidarity fromtheoutside,butmutuality indetermining the relativepayments frommembers.ForARC,all insuredcountriespaypremiums basedon riskestimates,while for settingupandoperating thepools support comes from donor organisations. In other words, donors contribute to reducing some of the loads on the insurance premium.ARC’s non-profitmutual insurance company (not necessarily meaning the premiums are based onmutuality) is capitalised by financial and development institutions, including the GermanDevelopment Bank and theUKDepartment for InternationalDevelopment (DFID),whichmeans that premiums are indirectly supported through a solidarity principle. For ARC, thus,