Not a silver bullet: Why the focus on insurance to address loss and damage is a distraction from real solutions

This study argues that the focus on insurance by developed countries is too narrow and comes at the expense of a serious consideration of other options. Insurance is only one tool in a much larger toolbox. The emphasis on insurance is also self-serving and diverts the focus from the failure of developed countries to provide adequate and predictable public climate finance in order to fulfill their obligations under the climate regime to one of blaming developing countries for a lack of effort to manage their growing climate risk. This is an unfair and unreasonable expectation, as developing countries did not cause climate change.

The narrow focus on insurance is also ideologically motivated, looking to the private sector and public-private partnerships as a financing solution. This analysis finds that the evidence on whether climate insurance is the most appropriate or most sustainable risk management mechanism for poorer countries is lacking, particularly in comparison with other approaches, such as investing in informal savings schemes, social safety nets, or cash transfer programs. The evidence points to such alternative public approaches, for which affected citizens when consulted about their preferences have voiced strong support, providing better value for money than the cost of insurance premiums.

In order to illustrate some of these points, this study considers three case studies: two comparison cases of climate impacts in the developing and developed world during the 2017 hurricane season and one case of climate exacerbated drought in Malawi. First, this paper contrasts the role of insurance in response to hurricane impacts in Dominica and the United States. This study also analyses the experience of Malawi with sovereign-level drought insurance from the African Risk Capacity (ARC).

This paper highlights a number of approaches to loss and damage that should receive more attention and international finance, such as national contingency funds with dedicated loss and damage savings pools or social protection programs, social safety nets, and direct cash transfers to increase the underlying resilience of communities. This study argues that a global solidarity fund should be at the center of such a package of non-insurance solutions to provide financial support for loss and damage to vulnerable countries and populations. This fund could be financed in substantial part by a Climate Damages Tax, imposed on the fossil fuel industry, thus operationalizing the polluter-pays principle.