Page - 504 - in Loss and Damage from Climate Change - Concepts, Methods and Policy Options

504 J.Linnerooth-Bayeret al. 21.6 Summary:TheEvolvingInsuranceNarrative This chapter has asked whether insurance instruments, and particularly micro- insurance and regional insurance pools, can serve as a risk-reducing and equi- tablecompensatoryresponsetoclimate-attributedlossesanddamagesfromweather extremes occurring in developing countries, and consequently if insurance instru- mentscanservethepreventativeandcurativetargetsoftheWIMandtheParisAgree- ment?Asbackground, thechapter recognises that insurance,bydealingexclusively with residual, sudden-onset event risks, canbeonlyonepartof theL&Dresponse. The discussion has emphasised the substantial benefits of bothmicro-insurance programsandregional insurancepools:micro-insurance forprovidingpost-disaster relief and reconstruction andalsopre-disaster security (so important for adaptation and escaping poverty); regional insurance pools for decreasing the costs of rein- surance for governments and enabling early disbursement of emergency relief that saves lives, reducesdistressedproductiveasset sales andmitigatesdisaster-induced poverty traps.Thediscussionhasalsoemphasised thesignificantcostsof insurance, noting that insured households and governmentswill on average pay considerably more for climate insurance than theyexpect to lose fromextremeclimateevents. Notwithstanding the benefits and costs, the discussion has examined insurance instruments for their role inmeeting the curative and preventative aspirations for theWIM—equitablycompensatingforresidualclimate-attributedimpactsproviding strongincentivesordirectivesforreducingrisks.Amainmessagefromthisdiscussion is thatabsent significant intervention in theirdesignandimplementation, insurance mechanisms as currently implemented will likely fall short of fully meetingWIM aspirationsas (differently) expressedbydevelopedanddevelopingcountryParties. Thismessage is detailed in Table 21.3, which provides themechanisms bywhich insurancecan inprinciple supportWIMresponses. Recent experience shows that with some important exceptions indemnity and parametric programs (mainly public-private partnerships), beyond pricing risk and reducingmoral hazard, have fewexplicit incentivesor requirements for risk reduc- tion,eveniftheirpotentialispromising.Reforminginsuranceprogramsforimproved loss reduction can build on recent successful experiences, particularly evidence of significant risk-reduction activities on thepart of public insurers compared to their private insurer counterparts, and innovations and developments in risk pricing and engineering,alongwithmoretargeteduseoflimits,deductiblesandwarranties.Still, aswewitness inwealthycountries,progresswillbeslowandpatchywithoutpublic andprivatecommitment toshapinginsurancesystemssuchthat theyfosterpractices that lead to investment indisaster risk reductionpractices. AsimilarmessageemergesregardingthecurativeaspirationsfortheWIM.Insur- ancebasedontheprincipleofmutuality(typicallyprivate,market-basedinsurance), unless subsidised or otherwise supported, does not share risk beyond the at-risk insuredcommunity.Thereis thusnoreimbursementof losses tothevictimsofdisas- ters(onaverage)outsideofwhatpolicyholders, themselves,contribute inpremiums, whichdisqualifiesmutuality-based insuranceasacurativemechanismmeetingvul-