1. ^aInternational Institute for Applied Systems Analysis (IIASA), Schlossplatz 1, A-2364 Laxenburg, Austria
2. ^bUnited Nations University Institute for Environment and Human Security (UNU-EHS), UN Campus, Hermann-Ehlersstr 10, D-53113 Bonn, NRW 53113 Germany
3. ^cGermanwatch e.V., Dr.Werner-Schuster-Haus, Kaiserstr 201, D-53113 Bonn, Germany
4. ^dMunich Re GeoRisks Department, Königinstr 107, D-80802 Munich, Germany
5. ^eMunich Re Foundation, D-80791 Munich, Germany
6. ^fMunich Re Foundation, 26, St. Anne's Road, Toronto, ON M6J 2C1, Canada
7. ^gPotsdam Institute for Climate Impact Research (PIK), Telegrafenberg A 31, 14473 Potsdam, Germany

Abstract

By providing financial security against droughts, floods, tropical cyclones and other forms of weather extremes, insurance instruments present an opportunity for developing countries in their concurrent efforts to reduce poverty and adapt to climate change. By pricing risk, insurance provides incentives for reducing risks and adapting to climate change; if these premiums are not affordable to the most vulnerable, donors can combine premium support with risk-reduction measures. In this paper, we examine the costs, benefits and risks of public-private (and donor supported) insurance programmes that offer affordable economic security to vulnerable communities and governments. Insurance mechanisms are of particular interest to climate negotiators seeking strategies that help vulnerable countries adapt to increasing severity and frequency of weather disasters, and we examine the case for including insurance mechanisms in a climate adaptation strategy expected to be agreed in Copenhagen in 2009. We present a proposal for this purpose that has been recently put forward by the Munich Climate Insurance Initiative (MCII), which calls for international solidarity for very low probability and high consequence weather-related events (high-risk layer). For middle-layer risks the MCII proposal calls for international support to promote sustainable, affordable and incentive-compatible insurance programmes that serve the poor without crowding out private sector involvement.