Absorbing Climate Impacts
How can climate risk insurance be linked with other forms of social protection to help vulnerable communities absorb climate impacts?
Deadline:Sunday, Mar 11, 2018 at 20:00:00 PM Eastern Daylight Time
Judging Criteria & Prizes:See below.
About UN Climate Resilience Initiative A2R
The UN Climate Resilience Initiative A2R: Anticipate, Absorb, Reshape is a global multi-stakeholder initiative launched by the former UN Secretary General Ban Ki-moon during COP21 in Paris. The Initiative strengthens climate resilience for most vulnerable countries and people and brings together governments, international agencies, regional initiatives, the private sector, civil society and academia. The Initiative accelerates action on three key capacities of climate resilience:
- Anticipate: Capacity to anticipate and act on climate hazards and stresses through early warning and early action
- Absorb: Capacity to absorb climate shocks and stresses by increasing access to climate risk insurance and social protection systems
- Reshape: Capacity to reshape development pathways by transforming economies to reduce risks and root causes of vulnerabilities and support the sound management of physical infrastructure and ecosystems
About InsuResilience Global Partnership
The InsuResilience Global Partnership for Climate and Disaster Risk Finance and Insurance Solutions brings together countries, civil society, international organizations, the private sector, and academia. The vision of the InsuResilience Global Partnership is to strengthen the resilience of developing countries and protect the lives and livelihoods of poor and vulnerable people against the impacts of disasters through supporting the disaster risk financing strategy and architecture of vulnerable countries, depending on country circumstances.
The Partnership was welcomed jointly by the G20 leaders at their summit in Hamburg this year and builds on existing efforts such as InsuResilience, which aims to provide insurance to 400 million poor and vulnerable people in developing countries. The Partnership contributes to exchange, coordination, and the advancement of capacities in the field of climate and disaster risk finance and insurance.
The central objective of the Partnership is twofold: to enable countries to carry out more timely and reliable post-disaster response, and to enable them to better prepare for climate and disaster risk through the use of risk finance and insurance. Meeting these goals will reduce humanitarian impacts, help poor and vulnerable people recover more quickly, and strengthen local resilience over time. This approach complements ongoing efforts in countries to prevent, reduce and adapt to climate and disaster risks. Working together with all interested stakeholders, the Partnership promotes the adoption and enables the expansion of disaster risk finance and insurance coverage in developing countries as part of comprehensive climate risk management.
1. Impacts of climate change on vulnerable communities
The negative impacts of climate change can take the form of shocks such as such as floods or storms, or longer-term stresses such as droughts or changing rainfall patterns. Climate-related shocks and stresses pose significant challenges to poverty reduction, and climate change could result in an additional 100 million people living in extreme poverty by 2030 (Hallegatte et al., 2016). Poor and vulnerable populations are particularly at risk from climate change impacts due to their higher exposure to extreme weather events. They are often also least able to prevent, cope with and adapt to climate impacts and often lose more in relative terms in the case of an extreme weather event. This compounds a higher risk of falling (back) into poverty due to the impacts of climate change.
2. What is social protection?
Social protection refers to a wide set of policies and programmes that aim to reduce poverty and vulnerability. Social protection is often divided into three types: social assistance, social insurance and labour market interventions, as illustrated with examples in the table below:
3. How can social protection help communities to cope with climate impacts?
a) Social protection can help people anticipate and prevent shocks and stresses before they happen, by taking early action and by improving incomes and livelihoods (Costella et al, 2016).
- For example, after the 2011 drought in Kenya, overall poverty increased by 5% but people covered by the Hunger Safety Net Programme that were receiving regular transfers in advance were shielded from it (Merttens et al., 2013)
b) After a shock, social protection can help people absorb the impacts by providing direct support to affected populations and by preventing some of their negative consequences (Costella et al., 2016).
- For example, people impacted by drought but covered by Mexico’s conditional cash transfer programme, Progresa, were less likely to withdraw their children from school (Hallegatte et al., 2016).
c) Social protection can also help improve and diversify livelihoods, reduce poverty and vulnerability in the long term, and increase adaptive capacity to deal with future climate risks (Costella et al., 2016).
- For example, public works projects that focus on building assets aimed at protecting the environment can reduce exposure and sensitivity to droughts and floods (World Bank, 2013).
To ensure that social protection can effectively reduce vulnerability to climate risks, it needs to be ‘shock-responsive’. This means that social protection systems are designed to respond flexibly in the event of an emergency and can be rapidly scaled up.
4. What is climate risk insurance?
Despite significant mitigation of greenhouse gas emissions, states and societies need to prepare for the unavoidable impacts of extreme weather events exacerbated by climate change. Adaptation and disaster risk management efforts can significantly reduce but not eliminate negative impacts of extreme weather events.
Innovative solutions of risk transfer, such as climate risk insurance, help to prepare for these risks. Insurance is most effective in combination with adaptation and disaster risk management, since these avoid or limit negative impacts as far as possible in the first place. For example, governments can take precautionary measures to better protect coastal areas and their inhabitants from extreme weather events, e.g. construction of improved road systems or reforestation of mangrove forests.
Climate risk insurance protects people, businesses and states from the adverse effects of climate-related extreme weather events such as droughts, floods and tropical cyclones and reduces the burden, as risks are spread across many shoulders even before potential damage occurs.
If implemented in the right way, climate risk insurance can be regarded as one type of social protection tool to be embedded into wider social protection frameworks.
Climate risk insurance can be implemented at three levels:
- Micro level (direct): Policyholders are individuals, such as farmers or market vendors, who hold policies and receive payouts directly. These policies are often sold at the local level through microfinance institutions, farmers’ cooperatives, banks, NGOs and local insurance companies. Premiums are either paid in full by clients or subsidized (or both).
- Meso level (indirect): Policyholders are risk aggregators such as associations, cooperatives, mutuals, credit unions or NGOs, whereby a (re)insurer makes payments to the risk aggregators, which then provide services to individuals.
- Macro level (indirect): Policies are held by governments or other national agencies, within the international/regional reinsurance market. Payouts can be used to finance post-disaster programmes and relief efforts for predefined target groups. Beneficiaries of these programmes can be individuals. These schemes can function through regional risk pools.
There are different types of insurance products that correspond to these levels, with indemnity-based insurance and index insurance two main types:
- Indemnity-based insurance is insurance in which the claim is calculated by measuring the percentage of damage after it occurs and providing payouts based on this loss assessment.
- Index insurance is a form of insurance in which payouts are paid directly after an index has been triggered by exceeding a defined threshold. Index insurance can have a weather-based, satellite-based or yield-based trigger. For example, in the case of a weather index, a payment could be made if 5-day rainfall amounts exceeded a given threshold.
5. How can climate risk insurance help communities to cope with climate impacts?
a) Financial liquidity
Insurance can provide timely finance that improves financial liquidity shortly after or even before a shock. Compared to humanitarian assistance, which often takes a very long time to reach the beneficiaries, this type of support can act as a safety net and buffer for people, businesses and countries.
- For example, after a tropical cyclone hit Vanuatu in 2015, the country received a 1.9 million USD payout from the Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI) within only seven days.
Without insurance coverage, people affected by a disaster may resort to coping strategies that put them at risk to fall back into poverty. For instance, by selling their assets or reducing their food consumption, they may trade off their basic needs or income sources. Timely and reliable payouts, sometimes even before a shock arrives, can enable households to protect their livelihoods and undertake more effective risk coping strategies.
- For example, coverage from an index-based livestock program in Kenya (IBLI) led to an estimated reduction of 25-36% in the likelihood of distress livestock sales.
b) Unlocking opportunities
Insurance can act as a security net for the insured and provide incentives to invest more in their insured assets during non-pay out periods.
- For example, ACRE Africa found that insured farmers invested 19% more and earned 16% more than their uninsured counterparts. In this case, insurance also positively affects the income of the potential beneficiary, which may help people to escape from poverty traps.
c) Catalyzing risk assessment
Some cases show that insurance programs were able to catalyze risk assessment by increasing farmers’ sensitivity towards changing rainfall patterns by incorporating training (as is the case with the African Rural Resilience Initiative) and installing weather stations.
- For example, detailed probabilistic hazard models produced by the Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI) led to a greater understanding and modeling of natural hazards among participating countries, helping them to be better prepared for major events.
d) Improving post-disaster decision-making
Through premium prices, insurers can set behavioral incentives that can encourage risk reduction.
- For instance, the African Risk Capacity (ARC) makes contingency planning an eligibility criteria for countries. This can motivate countries to strengthen their crisis and risk management, and thereby help to reshape the way risks are managed.
6. Why link climate risk insurance and other types of social protection?
Vulnerable households have to cope with a number of different shocks at the same time. Ideally, insurance products should therefore address several types of shocks and stresses induced by climate change. Linking insurance with broader social protection networks could enhance households’ and communities’ ability to absorb climate shocks and stresses, improve their ability to reduce and manage risk and reduce poverty.
Approaches combining insurance with other types of social protection can also contribute to reducing transaction costs while making the insurance product easier to communicate and more consistent with other support received by households (Waters & Schaeffer, 2016).
Targeting is a strong suit of social protection schemes, and insurance could capitalize on this when trying to effectively reach their target group. Insurance can also strengthen social protection systems and safety nets: Insurers bring important risk assessment skills and can help social systems share the costs of larger shocks. Handling claims and contributory payments are ways in which insurance can improve the efficiency of social protection schemes, particularly in countries with weak governance and public administration.
Some of the possible ways of linking climate risk insurance and other types of social protection include:
- Social protection could be financed through payouts from sovereign risk pools, and payouts from them could be delivered through existing or new social protection schemes.
- Social protection and risk insurance programmes could be linked to target different groups within a community, as is the case with the Kenya Hunger Safety Network Programme and Livestock Insurance Programme. In this case, social protection and insurance are layered as complementary risk management products, whereby the most vulnerable are served by the safety net and the better off individuals are targeted by livestock insurance. Targeting is based on a joint database of the population at ward level.
- R4, a rural resilience initiative in Africa, is a good example of how a microinsurance product for the poor can be integrated into a social safety net. Through an integrated climate risk management approach, R4 enables the poorest farmers to access crop insurance by participating in risk reduction activities.
While combining insurance with broader social protection measures is one option for synergies in enhancing the ability of vulnerable communities to absorb climate impacts, there is a need for integrated and flexible strategies for managing climate risk, with a range of measures appropriate for different types of shocks and stresses and affected populations.
7. What are the limitations of social protection and climate risk insurance in helping vulnerable communities absorb climate shocks and stresses?
There are limits to the ability of social protection to support communities in absorbing climate impacts. Social protection may be less effective at protecting against prolonged adverse trends, such as sea level rise. If shocks and stresses become too frequent and intense, social safety nets become inefficient and livelihood changes are needed (Hallegatte et al., 2016).
Similarly, insurance is not an appropriate measure for all climate change impacts, including slowly developing and foreseeable events or processes that happen with high certainty, such as glacier melt or sea level rise. Climate risk insurance would not be appropriate for disastrous weather-related events that occur with very high frequency, such as recurrent flooding.
As climate change will increase the intensity and frequency of extreme weather events, there may come a time when some risks become so severe that they are uninsurable. Slow onset events such as sea level rise and desertification are already uninsurable and will need to be addressed by other risk management measures. An increased risk could lead to higher premiums with currently insurable risks, making the product too expensive for the poor or the actors who pay premiums on their behalf.
We are calling for proposals that outline an innovative, practical solution combining climate risk insurance with other forms of social protection to help vulnerable communities absorb climate impacts. Proposals could take the form of new schemes, products or methodologies or build on existing approaches.
This contest seeks proposals that:
- Are linked to a specific context;
- Highlight how the proposed innovation will enhance the target group’s’ capacity to absorb and cope with climate impacts;
- Address how long term feasibility and local ownership could be secured in the proposed approach.
- Include a detailed budget with a timeframe for implementation (detailed budgets will be requested at semi-finalist stage).
Proposals can be at any stage of development:
- Well thought-out ideas that require additional research, design or planning;
- Comprehensive strategies or schemes that are ready for prototyping or implementation;
- Initiatives and projects that have already achieved success and are ready to be scaled;
- Best practices that need refinement or support in order to scale;
- Methodologies for designing or improving the design of strategies and schemes.
Judges will be asked to evaluate proposals on the following criteria:
- Feasibility: Feasibility of the actions proposed in the proposal. Judges with different kinds of expertise will evaluate the technical, economic, social, and political feasibility of the proposals.
- Impact: Impact and ability of the actions proposed to contribute to vulnerable communities’ ability to absorb and cope with climate shocks and stresses. This includes the impact of the proposal in reaching a number of vulnerable people on the ground and the magnitude of the proposal’s impact on communities’ and individuals’ capacity to absorb.
- Novelty: Novelty of the proposal's ideas. Innovative thinking and originality in a proposal will be valued more than encyclopedic knowledge.
- Presentation Quality: Proposals that are well-presented will be favored over those that aren't. Presentation quality includes how well written a proposal is, how well it uses graphics or other visual elements, and how compelling are its artistic representations of possible future worlds (if any). Semi-finalists will also evaluated on the quality of the proposed detailed budget for the use of seed funding for implementation.
The Climate CoLab Impact Assessment Fellows can help you estimate the potential impact your proposal can have on preventing fatalities and damages, which the Judges will take into consideration when assessing your proposal. See your proposal's Impact tab for more details.
Judges will evaluate proposals, and deliberate as a group to select the Semi-Finalists, Finalists, Winners, and possibly other awardee(s) at their discretion. Judgments of desirability are also made in the final stage of the contest, by the Climate CoLab community through popular vote, and by the Judges through their selection of the Judges' Choice winner(s).
For the contest schedule and phases, please see the blue schedule bar on the contest.
The Judges' Choice Winner will be selected by the judging panel. The UN Climate Resilience Initiative A2R and InsuResilience will provide the Judges’ Choice Winner with seed funding for implementation of the proposal (worth 40,000 euros) and mentoring, training and technical assistance (worth 12,000 euros) as outlined below.
Seed funding for implementation of the winning proposal (worth 40,000 euros)
The Judges' Choice Winner will receive seed funding to support the implementation of the winning proposal. The funding will be spent according to a budget submitted by the team, to be agreed on with the contest organisers. Budgets detailing how the seed funding would be spent will be requested from semi-finalists to the contest. The terms and conditions associated with the seed funding will be set out in an agreement with the winning team.
Mentoring, training and technical assistance (worth 12,000 euros)
Mentoring, training and technical assistance will be provided to the Judges' Choice Winner. Suitable mentors will be identified to support the implementation of the winning proposal, with online and face-to-face mentoring provided on a monthly basis for the duration of three months. In addition, a training and technical assistance plan will be developed with the winning team, with the support of the mentors identified. The form of support will be determined depending on the team’s needs but could include a relevant training course or a field study on a relevant topic. The details will be set out in an agreement with the winning team.
The Judges' Choice Winner will also receive wide recognition and visibility by MIT Climate CoLab.
The Popular Vote Winner will be chosen by popular vote, at the Finalist stage of the contest. The Popular Vote Winner will win an expenses-paid trip (including flight, accommodation, and meals to attend the InsuResilience Global Partnership Forum in 2018 during COP24, where the winner will be given the opportunity to present the proposal to a community of practitioners, policymakers and private sector representatives.
Additional awards and prizes may be given by either the Judges or MIT Climate CoLab in order to recognize other top proposals. See contest rules for details.
Resources for Proposal Authors
UN Climate Resilience Initiative: http://www.a2rinitiative.org
UN Climate Resilience Initiative (2017) Anticipate, Absorb, Reshape: Current progress on three key capacities for climate resilience. Available at: http://bit.ly/2qO0Q8k
Hallegatte, S et al. (2016) Shock Waves: Managing the Impacts of Climate Change on Poverty. Climate Change and Development Series. Washington, DC: World Bank. Available at: https://openknowledge.worldbank.org/bitstream/handle/10986/22787/9781464806735.pdf?sequence=13&isAllowed=y
Climate risk insurance
Schaefer, L. and Waters, E. (2016) Climate risk insurance for the poor & vulnerable: How to effectively implement the pro-poor focus of InsuResilience. Munich Climate Insurance Initiative. Available at: http://www.climate-insurance.org/fileadmin/mcii/documents/MCII_2016_CRI_for_the_Poor_and_Vulnerable_full_study_lo-res.pdf
GIZ and KfW (2015) Climate risk insurance for strengthening climate resilience of poor people in vulnerable countries. A background paper on challenges, ambitions and perspectives. Available at: https://m.bundesregierung.de/Content/DE/_Anlagen/G7_G20/2015-06-01-g7-climate-risk-insurance.pdf?__blob=publicationFile&v=5
Clarke, D. and Dercon, S. (2016) Dull disasters? How planning ahead will make a difference. Available at: http://documents.worldbank.org/curated/en/962821468836117709/Dull-disasters-How-planning-ahead-will-make-a-difference
Béné, C. et al. (2014) Social Protection and Climate Change, OECD Development Co-operation Working Papers, No. 16, OECD Publishing, Paris. Available at: http://dx.doi.org/10.1787/5jz2qc8wc1s5-en
Ulrichs, M. (2016) Increasing people’s resilience through social protection. Resilience Intel, Issue 6. BRACED. Available at: https://www.odi.org/sites/odi.org.uk/files/resource-documents/10555.pdf
Ulrichs, M. and Slater, R. (2016). How can social protection build resilience? Insights from Ethiopia, Kenya and Uganda. BRACED working paper. Available at: https://www.odi.org/sites/odi.org.uk/files/resource-documents/11123.pdf
Costella, C. et al., (2017) 7 things to know about managing climate risk through social protection. BRACED. Available at: http://www.braced.org/contentAsset/raw-data/394db34f-1a14-4fe5-9daa-d3a1921003fb/attachmentFile
R4 Rural Resilience Initiative : http://www1.wfp.org/r4-rural-resilience-initiative
Kenya Hunger Safety Network Programme: http://www.hsnp.or.ke
Index-Based Livestock Insurance: https://ibli.ilri.org
Merttens, F., et al., (2013) Kenya Hunger Safety Net Programme monitoring and evaluation component. Impact evaluation report: 2009 to 2012. Oxford: OPM. Available at: https://www.oecd.org/derec/unitedkingdom/Evaluation-of-the-Hunger-Safety-Net-Programme-Kenya.pdf
World Bank (2016) Kenyan Farmers to Benefit from Innovative Insurance Program, 12 March 2016. Available at: http://www.worldbank.org/en/news/press-release/2016/03/12/kenyan-farmers-to-benefit-from-innovative-insurance-program
Photo credit: Aysan Amirghiyasvand (Instagram: photomundial_)