Expert dialogue on developing the market for insurance associated with climate phenomena

Group of people from bird's-eye view

Picture: GIZ/Peru

From 16-18 July 2013, over 180 insurance and climate change experts from 14 countries, including nine Latin American states, gathered in Peru for a workshop titled 'Market development for insurance associated with climate phenomena'. The workshop was organised by the 'Insurance for agricultural microcredit schemes to support adaptation to climate change' project supported by the International Climate Initiative (IKI), which is being implemented in Peru by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ). Participants included representatives from government authorities at national and subnational level, regulatory authorities, insurers and reinsurers, financial institutions and research bodies, and development organisations.

During the three-day workshop, participants discussed the dynamics of insurance markets within the context of climate change in Latin America and examined a variety of approaches for their development. In the process, they mapped out strategies and guidelines for the public and private sectors, and discussed which roles should be taken on by the respective partners. The participants included senior decision-makers such as Peru's Minister for Agriculture, Milton Von Hesse, who clearly stated in his opening remarks that disaster risk management and risk transfer strategies must be elements of sectoral policies. In addition to a range of expert presentations, experiences drawn from international projects were shared by representatives of IKI-supported insurance projects in Ghana and the Caribbean, as well as the Frankfurt School and the United Nations.

The most important insight derived from the workshop was that there are no simple solutions for these complex challenges. Sustainable, countrywide systems that are functioning well are also a rarity. Within this context, David Hatch of the Inter-American Institute for Cooperation on Agriculture (IICA) warned of a lack of initiative: 'Over the long-term, countries that do not develop products directly with reinsurers will fail to cope with climate-based risks. Reinsurers already have all the experience they need for this.'

Joachim Herbold of Munich Re effectively summed up the workshop's message in an interview he gave: 'First we need to develop the system, and then the insurance product.' Insurance constitutes an important and innovative option for dealing with extreme weather events. While it does not reduce the loss of life or property, it lowers the economic impacts and enables better conditions for reconstruction after disasters. Well-designed insurance solutions also function as a market instrument by penalising risky behaviour, promoting sensitisation measures, and making disaster protection a key element of economic and financial decisions for climate change adaptation.