Authors: Joanne Linnerooth-Bayer (IIASA), Christoph Bals (Germanwatch) and Reinhard Mechler (IIASA)
The Bali Action Plan specifically calls for "consideration of risk sharing and transfer mechanisms, such as insurance" as a means to address loss and damage in developing countries particularly vulnerable to climate change. This paper examines the case for insurance mechanisms by addressing two fundamental questions: whether climate insurance programs should be part of an international adaptation strategy, and if so, how? Our discussion suggests that there is a promising and legitimate role for insurance mechanisms in an adaptation regime. We draw this conclusion in full recognition that insurance is not appropriate in all contexts, and that it must be viewed as only part of a comprehensive risk-management program. The challenge becomes how developed countries can provide support to promote sustainable, affordable and incentive-compatible insurance programs for vulnerable households, SMEs and governments without crowding out private sector involvement. In meeting this challenge, this paper concludes by presenting a proposal for a two-pillar (prevention and insurance) international risk-management strategy as part of an adaptation regime - a proposal that has recently been put forward by the Munich Climate Insurance Initiative.
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