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Climate risk insurance

Flooding during the rainy season in Bentiu, South Sudan

Climate change has an influence on the frequency and intensity of extreme weather events worldwide. Developing and emerging economies are particularly exposed, as climatic changes are threatening to undo development gains that have already been made.

In 2019, cyclones Idai, Kenneth and Fani showed once more that the world – and especially its most vulnerable countries – is increasingly exposed to extreme weather events. The science portal World Weather Attribution has found that two thirds of all extreme weather events studied were more severe because of human-made climate change. Records of extreme weather events show that nearly everywhere, extreme heat has become even stronger and extreme cold has become less frequent; generally there has been stronger precipitation, but patterns differ by region; and there has been more damage caused by hurricanes due to stronger rain and higher floods.

The devastation caused by cyclone Idai in Mozambique, Malawi and Zimbabwe required an emergency response from the international community. The UN has called the cyclone one of the worst weather disasters in Southern Africa to date – Southern Africa being one of the poorest regions in the world.

The cyclone once more showed that sustainable development can only be achieved through disaster preparedness and mechanisms to strengthen resilience. Recurrent emergency aid is not enough. In the long term, countries which already lag far behind on achieving the Sustainable Development Goals will be set back even further through disasters.

As part of its development cooperation, Germany supports climate risk management worldwide. However, even good risk analyses and preventive measures cannot completely avert damage caused by extreme weather events. Moreover, prevention is only economically viable up to a certain probability that an event will actually occur.

Thus, comprehensive climate risk management also means developing strategies for coping with the consequences of extreme weather events, which may become more common as a result of climate change. Climate risk insurance is one tool that can help people cope with the consequences of extreme weather events.

How does climate risk insurance work?

Climate risk insurance provides a financial safety net against the damage caused by extreme weather events, which are growing more frequent and more intense as a result of climate change. In direct insurance schemes, for example, individuals or businesses are insured against risks such as crop loss. They then receive immediate assistance when needed.

With indirect insurance schemes, it is governments or non-governmental organisations (NGOs) that take out insurance against climate risks, either individually or as part of a risk pool. When damage occurs, they quickly receive financial compensation that can then be used to assist the people affected, especially poor people who are particularly vulnerable to extreme weather events.

Flooding in Mozambique

What is risk financing?

Effective risk financing consists of a range of different instruments that can cover financing needs resulting from extreme weather events of different intensity and frequency. Climate risk financing is most effective if it is part of a country's (or other player's) broader risk management strategy and if provision is made for it in the government's budget and credit lines.

In an emergency, climate risk financing gives governments and NGOs quick access to funding, reducing the strain on the budget and providing security and predictability. In that context, it is vital to define in advance how the funding will be paid out after a disaster so that the poorest and most vulnerable groups will really benefit.

A woman farmer with her herd of goats in northwestern Kenya, which is affected by drought.

Why is there a need for risk financing and climate risk insurance?

Quick emergency relief and swift recovery

Insurance schemes and risk financing facilitate quick emergency relief and swift recovery after disasters. After a disaster, valuable time passes while the international community and aid organisations are working hard to raise money. Often, it takes weeks or even months before the survivors receive assistance. More and more governments and NGOs are realising that preparedness is cost-effective and advantageous because natural disasters are becoming more frequent and more extreme as part of climate change. They take account of these risks in their budget planning in order to protect human lives, livelihoods, but also the national budget from the impacts of climate change.

Risk financing and climate risk insurance are based on a preparedness approach. This makes it possible to pay out money to survivors within a few days after an emergency, saving people's lives and assets and protecting development gains that have already been made. In other words, risk financing and insurance schemes help to reduce poverty, attain sustainable development and also reduce the economic push factors of migration.

Entitlement to compensation for losses

Climate risk insurance gives insurance holders the certainty that they will really receive assistance after a disaster, because they are legally entitled to compensation for losses incurred. This means that survivors of disasters are no longer reduced to supplicants. They can do something to secure their livelihoods.

Incentives for preventive action and risk reduction measures

Moreover, risk financing and insurance provide incentives for preventive action and risk reduction measures, both on the part of governments and on the part of individuals. For example, drought insurance contracts are based on systematic risk assessments. If an insured party, such as a small farmer, takes action to reduce risks, for example by planting drought-resistant crops, he or she can get a lower insurance premium.

This enhances awareness of the development of adaptation measures and encourages risk management to improve disaster preparedness. Moreover, some regional risk pools require that contingency plans are in place before a party can enter into an insurance contract. These contingency plans make sure that disbursed funds are used effectively. Thus, people in need can benefit quickly from disbursements after a disaster.

Synergies between public and private efforts

Public-private partnerships, too, are a way of helping to put the resources of the insurance industry to use for the benefit of climate change adaptation and development. In that way, the private sector's expertise and access to data, risk models and capital can be tapped for climate risk insurance schemes for poor and vulnerable people. For example, remote sensing instruments facilitate swift and nationwide damage assessment after an extreme weather event. This also fosters the development of local insurance markets.

One example of the synergies between public and private players is the InsuResilience Investment Fund (IIF). It invests in private insurance companies and intermediaries with activities in developing countries in order to give up to 100 million people poor and vulnerable people access to climate risk insurance.

Indirect insurance

Germany has played a major part in the establishment of three regional risk pools in Africa, the Caribbean and the Pacific.

African Risk Capacity (ARC)

The African Risk Capacity (ARC), a drought insurance scheme, was set up at the initiative of the African Union. It offers African countries insurance against extreme weather risks. ARC differs from other risk pools in that it has linked financial disaster risk protection closely with an early warning system and mandatory contingency plans to be adopted by client countries. This makes it possible to provide assistance to survivors very quickly and effectively.

ARC has already paid out 36.8 million US dollars to the governments of Mauritania, Senegal, Malawi and Niger, assisting more than 2.1 million people in severe drought situations.

Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI)

For the Pacific region, G7 members Germany, UK, USA and Japan joined with the Pacific island states and the World Bank in 2016 to found a new risk insurance programme, the Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI). PCRAFI offers insurance products to cover tropical cyclones and earthquakes. Four island states are currently policyholders: the Cook Islands, Tonga, the Marshall Islands and Samoa. For example, following cyclone Gita in early 2018, PCRAFI paid out 3.5 million US dollars to Tonga just seven days after the disaster.

Caribbean Catastrophe Risk Insurance Facility (CCRIF)

With support from InsuResilience, the Caribbean Catastrophe Risk Insurance Facility (CCRIF) was expanded to include Central America. Nicaragua was the first Central American country to join, in 2016. CCRIF offers coverage against hurricanes, earthquakes and heavy rains.

On 1 July 2019, the Facility gave two of its member governments – Grenada and Saint Lucia – parametric insurance through the Caribbean Oceans and Aquaculture Sustainability Facility (COAST). Unlike traditional indemnity insurance, parametric insurance provides payments as soon as a certain trigger value has been reached – with regard to precipitation levels, temperature, or wind force, for example. As a result, they are quicker and more cost-effective when it comes to processing benefit payments.

COAST policies offer fisherfolk and other fishery industry players financial protection to ensure quick recovery after weather-related events. The Caribbean is the first region in the world that is developing and implementing parametric climate risk insurance for the fisheries sector. For the first time, vulnerable fishing communities will have access to insurance that has been tailored to their specific needs.

House destroyed by earthquake in Haiti

Direct insurance

As part of the InsuResilience Global Partnership, policy recommendations are being drawn up for insurance markets in developing countries. Private enterprises are important partners in this regard - not only because they are able to provide risk capital but also because they have knowledge, data and innovative technologies.

Germany also supports the development of sustainable climate risk insurance solutions for private market players such as insurance companies and for government institutions. This involves the drafting of information campaigns for the general public and support for innovative ideas (such as blockchain technology) to protect poor and vulnerable people.

Blockchain technology can make payments from index-based extreme weather insurance more transparent on the basis of publicly available weather data. For instance, if rainfall drops below a critical level or exceeds a certain level, the blockchain automatically allocates a compensation sum that is transparent for all members. The technology also facilitates the storage of data on water consumption and farming practices. On the basis of such improved information, the insurance company is able to offer farmers more attractive premiums. The data gathered can also be used to market products, as products from sustainable farming fetch higher prices.

Nomad with water canister in Kenya

InsuResilience Global Partnership for Climate and Disaster Risk Finance and Insurance Solutions

According to figures from Munich Re, merely about 3 per cent of weather-related damage in developing countries is covered by insurance at present. But there is empirical evidence that the economy recovers much more quickly in countries with functioning insurance systems than in those that lack such systems.

Every year, extreme weather events not only cause many people in developing and emerging economies to lose all their assets. They also destroy their livelihoods through the loss of crops or cattle. This can result in illness, malnutrition and forced migration. When countries or regions have to deal with the consequences of extreme weather events, they may accumulate more debt and their economic development may suffer severe setbacks.

The InsuResilience Global Partnership for Climate and Disaster Risk Finance and Insurance Solutions, which is supported by the German government, seeks to address these issues. The Partnership unites representatives of the G20 and of the Vulnerable Twenty Group (V20, the world's nearly 50 poorest and most vulnerable countries). It also engages with representatives of international organisations, the private sector, civil society and research institutions. Together, they develop and implement solutions to deal with risks arising from climate change and natural disasters.

The Global Partnership is based on the G7 InsuResilience initiative, which was founded at the Elmau G7 summit in 2015 with the aim of insuring an additional 400 million poor and vulnerable people against climate risks by 2020. The Partnership also seeks to strengthen countries' resilience in general and to provide new solutions for climate risk financing and insurance.

Since 2015, 700 million US dollars has been made available by G7 countries for the implementation of the InsuResilience initiative. In October 2018, the German government joined forces with the UK and the World Bank to set up a new financing instrument to expand and enhance climate risk insurance solutions for vulnerable countries, the Global Risk Financing Facility (GRiF). The Facility has been provided with 145 million US dollars and is intended to make a key contribution towards implementing the goals of the InsuResilience Global Partnership.

Another new and important implementation programme of the Global Partnership is the InsuResilience Solutions Fund (ISF). It supports the development of innovative climate risk insurance products in developing and emerging economies in order to cushion the impact of climate change. The Fund offers partial financing and advice to help turn new climate risk insurance ideas into marketable products and expand existing viable climate risk insurance products.

Logo: InsuResilience Global Partnership
InsuResilience Global Partnership – A platform for action

BMZ achievements in the field of climate risk insurance

Since its start, the InsuResilience Global Partnership has achieved a great deal: based on the 700 million US dollars pledged up to 2018, the initiative has been able to help expand existing insurance schemes and develop new schemes.

The funding is intended to assist national and sub-national governments in expanding their risk financing activities in order to improve their preparedness for natural disasters and negative climate impacts through comprehensive risk management strategies.

By mid-2019, as many as approximately 15.9 million people enjoyed protection thanks to InsuResilience.

In October 2018, the German government joined forces with the UK and the World Bank to set up a new financing instrument to make a key contribution towards implementing the InsuResilience Global Partnership, the Global Risk Financing Facility (GRiF).

So far, the African Risk Capacity (ARC) has assisted 2.1 million people affected by severe drought. In 2019, ARC paid out 23.1 million US dollars in Senegal and 738,835 US dollars in Côte d'Ivoire in order to compensate crop losses from severe drought.

  • Storm damage on the Caribbean island Dominica after Hurricane "Maria" in September 2017
    InsuResilience Global Partnership in depth

    A global partnership within the framework of the G20 and the V20

    During Germany's G20 Presidency, climate risk financing and insurance was a prominent issue on the agenda of this group of major industrialised and emerging economies.

  • Damaged infrastructure in St. Lucia after hurricane Matthew
    The future of the InsuResilience Global Partnership

    Vision 2025 – targets and milestones

    During the Katowice climate conference in 2018, the most senior body of the InsuResilience Global Partnership, the High-Level Consultative Group (HLCG), held its first meeting.

Storm damage on the Caribbean island Dominica after Hurricane "Maria" in September 2017
InsuResilience Global Partnership in depth

A global partnership within the framework of the G20 and the V20

During Germany's G20 Presidency, climate risk financing and insurance was a prominent issue on the agenda of this group of major industrialised and emerging economies. One key goal of the Climate and Energy Action Plan adopted at the G20 summit in Hamburg in 2017 is to strengthen the resilience of the poorest and most vulnerable people. This also means further expanding financing and insurance solutions for climate risks.

The G20 countries hence supported the creation of a Global Partnership for Climate and Disaster Risk Finance and Insurance Solutions, building on the InsuResilience initiative launched by the G7 in Elmau in 2015. Simultaneously, the V20 – the group of the world's nearly 50 most vulnerable developing countries - voiced their interest in increasing their cooperation with the G20 on this topic.

At the 2017 climate conference in Bonn, the BMZ joined forces with Fiji, Ethiopia, the World Bank and the UK to launch the InsuResilience Global Partnership for Climate and Disaster Risk Finance and Insurance Solutions, as a joint G20 and V20 initiative.

Improving resilience against climate risks

The aim of the Global Partnership is to increase the resilience of the poorest and most vulnerable groups in developing countries against climate risks. The expansion of climate risk financing and insurance instruments is intended to enable governments and households to respond more quickly and effectively to natural disasters, thus minimising potential costs.

Moreover, by providing the right incentives, the Partnership seeks to encourage governments to better prepare for the risks of climate change by putting in place contingency plans. This involves measures such as the stocking of seed reserves.

Combining the expertise and experience of all major stakeholders

In order to attain these goals, the Global Partnership brings together the expertise and experience of all major stakeholders. To that end, it unites representatives of developing and industrialised countries, international organisations and development banks, the private sector, civil society and academia. Together, they develop ideas on how to provide financial protection against climate and natural disaster risks, and they implement these ideas – in line with country-specific needs and with the challenges faced by the poorest population groups.

More than 70 partners from the sectors mentioned above have already joined the InsuResilience Global Partnership.

The Partnership's purpose is to expand insurance coverage, and also to provide comprehensive assistance to vulnerable countries as they work to achieve long-term resilience against climate risks by developing overarching climate risk financing strategies.

A high-ranking steering body provides strategic leadership for the Global Partnership. In addition, there is a Partnership Forum, which is the network of Partnership members. It has various channels and platforms through which members can exchange knowledge and make use of openings for cooperation. Then, there is a Program Alliance, which brings together implementation programmes that provide funding and advice to developing countries. Both bodies serve the purpose of combining international efforts on climate risk financing and insurance in order to increase their impact for poor and vulnerable people.

Detailed information on the Partnership can be found in the Joint Statement on the InsuResilience Global Partnership (PDF 376 KB) and in the related Concept Note (PDF 745 KB).

What kind of projects does the InsuResilience Global Partnership support?

The Global Partnership's ambitious goal is to be achieved through a combination of various measures in various regions. The focus is on expanding existing risk insurance mechanisms and developing new insurance and financing schemes. On that basis, the Partnership will support the implementation of comprehensive disaster risk financing strategies by national and local governments and help to expand insurance programmes for cooperatives, microfinance institutions and NGOs in vulnerable regions. In addition, measures will be undertaken to develop insurance markets, foster prevention and adaptation, and support capacity development in poor and vulnerable countries, not least with regard to the drafting of contingency plans.

More information on the projects supported by InsuResilience can be found on the website of the initiative: www.insuresilience.org

Damaged infrastructure in St. Lucia after hurricane Matthew
The future of the InsuResilience Global Partnership

Vision 2025 – targets and milestones

During the Katowice climate conference in 2018, the most senior body of the InsuResilience Global Partnership, the High-Level Consultative Group (HLCG), held its first meeting.

19 high-ranking representatives of the various stakeholder groups decided that a Vision 2025 should be drafted, including a work plan. During the UN Climate Action Summit in September 2019, the insurance companies organised in the Insurance Development Forum (IDF) committed 5 billion US dollars, and there were announcements by Germany and the UK for the commitment of a further 20 million euros and 90 million pounds, respectively, to support the implementation of the Vision 2025 targets.

In June 2019, the HLCG endorsed the Vision 2025 that had been drafted jointly by the InsuResilience secretariat and the technical teams of the HLCG members. The Vision contains specific targets for the period up to 2025 in line with the areas of action defined by the Partnership. One target, for instance, envisages the implementation of comprehensive risk financing strategies by 80 vulnerable countries (for instance countries from the V20 group).

The Partnership will address four workstreams to attain its targets: (1) strategic guidance and convergence; (2) action and implementation; (3) capacity building and knowledge management; and (4) collaborative network.

Logo: InsuResilience
  • Village in the Somali region of Ethiopia where nomads have settled due to the continuing drought.
    Africa: Cooperation in action

    Insurance policies against drought effects

    Drought poses a particular risk for African countries, and climate change will exacerbate the problem. This is where the African Risk Capacity (ARC) and ARC Replica drought insurance programmes come in.

  • Flooding in the Peruvian city of Piura in March 2017
    Cooperation in action

    InsuResilience Investment Fund (IIF)

    The InsuResilience Investment Fund (IIF) is the first investment fund that is organised on a private-sector basis and focuses on financial protection for poor and vulnerable people against climate risks. The Fund is intended to give up to 100 million people poor and vulnerable people access to climate risk insurance.

  • Farmer in South Africa
    Cooperation in action

    Implementation – the InsuResilience Solutions Fund

    The InsuResilience Solutions Fund (ISF), a key component of the InsuResilience Global Partnership, was established by KfW on behalf of the BMZ. The Fund's purpose is to give needy households better protection against climate and natural disaster risks.

  • Awareness raising on weather insurance in Mumbwa, Zambia
    Cooperation in action

    Development of insurance markets

    As part of the InsuResilience Global Partnership, the German Development Ministry supports activities to develop insurance markets in India, Zambia, Paraguay and Madagascar.

  • Rice harvest in Bangladesh
    India: Cooperation in action

    Satellite technology protects rice farmers against crop failure

    In 2017, after a severe drought, more than 200,000 small farmers in Tamil Nadu, India, received compensation payments. The damage was measured quickly and precisely through satellite technology.

  • Farmers in Ethiopia
    Ethiopia: Cooperation in action

    Getting regions ready for climate change

    Under its special initiative ONE WORLD – No Hunger, Germany finances (through KfW) the expansion of the Rural Resilience Initiative (R4), which was founded by the United Nations World Food Programme (WFP) and Oxfam. The new regions to be added to the programme are Tigray and Amhara in Ethiopia.

Village in the Somali region of Ethiopia where nomads have settled due to the continuing drought.
Africa: Cooperation in action

Insurance policies against drought effects – ARC and ARC Replica

Drought poses a particular risk for African countries, and climate change will exacerbate the problem. This is where the African Risk Capacity (ARC) and ARC Replica drought insurance programmes come in. ARC addresses governments, whereas ARC Replica targets humanitarian aid organisations that want to get additional insurance cover for a given country. More than 30 African countries have joined ARC, which gives them access to risk management and insurance products.

When a drought hits an insured African country, ARC finances a contingency plan that has been agreed with the country in question and has been approved by a panel of independent experts. The insurance is designed in such a way that it creates incentives to improve resilience to drought.

ARC is currently developing new insurance products for African countries to address not only drought but also floods and heavy winds.

ARC has provided coverage for drought risks for more than 400 million US dollars. Following droughts in individual countries, it has so far paid out 36.8 million US dollars to the governments of Mauritania, Senegal, Malawi and Niger, providing assistance to more than 2.1 million people in severe drought situations.

By the end of 2019, the Government of Senegal will have received a minimum of 22 million US dollars from ARC to compensate for crop losses. Thanks to its projection tool, African Risk View, ARC was able to inform the Government of Senegal as early as in August 2019 that nearly one million people would be affected by drought. When the season ended on 21 November 2019, a payment was made within 14 days, benefitting the people directly.

The German government and the UK jointly support the African Risk Capacity within the framework of the InsuResilience Global Partnership. Germany's contribution is being implemented through KfW.

Within the framework of ARC Replica Germany also provides support (through KfW) to humanitarian aid agencies such as the United Nations World Food Programme (WFP) and the Start Network, an international humanitarian NGO network, so that they can take out insurance themselves from the African Risk Capacity to cover emergency response measures in African countries. As a result, more emergency relief than in the past can be financed if a disaster strikes, and aid can be provided more quickly and effectively. Contingency plans are agreed beforehand, facilitating a harmonised national and international response, which makes aid for those affected by drought more effective. Thanks to ARC Replica, climate risk insurance is becoming an important element of the reform of the humanitarian system towards a greater focus on preparedness.

Flooding in the Peruvian city of Piura in March 2017
Cooperation in action

InsuResilience Investment Fund (IIF)

The InsuResilience Investment Fund (IIF), which was designed and is being co-financed by Germany through KfW, invests in private insurance companies and intermediaries with activities in developing countries in order to give up to 100 million people poor and vulnerable people access to climate risk insurance. IIF investments are helping, for instance, to expand the weather data measurement infrastructure (especially automated weather stations) and other services in many further rural districts in India, collecting the data needed for India's agricultural insurance companies. This is giving an additional 24 million poor rural people access to the agricultural insurance programme.

The Fund is the first investment fund that is organised on a private-sector basis and focuses on financial protection for poor and vulnerable people. The establishment of the Fund was initiated and financed by Germany, based on the extensive experience gained in Germany's Financial Cooperation with impact investment funds. It has met with great interest among private players wishing to invest in climate risk insurance in collaboration with trustworthy and experienced Financial Cooperation agencies. Germany has provided about 70 million euros. The Fund is using this money to leverage up to 180 million US dollars from private investors through its capital structure, benefitting the poor and vulnerable target group. Insurance companies with global operations are contributing to the Fund. Germany also uses the Fund to support the world's largest private climate risk insurance programme, the African and Asian Resilience in Disaster Insurance Scheme (ARDIS).

Peru

Climate change can be felt in many places, including Peru. In the first half of 2017, the country experienced the worst rainfall and landslides since 1998.

Public facilities, including hospitals, were flooded; homes were destroyed. Some small villages were completely cut off. The floods affected more than half a million people and killed at least 70.

The long-term consequences of the disaster particularly affect small farmers and small business owners. Some of them have lost their entire livelihoods.

Most people in developing countries have no kind of insurance against the effects of floods, heavy winds and droughts. This means that such events can quickly plunge them into poverty. Every storm, every shower makes farmers fear for their crops. But in the end, who will pay for broken dykes, destroyed buildings and lost crops?

The InsuResilience Investment Fund (IIF), which was set up under German development cooperation in 2015, supports the introduction and enhancement of insurance products that can cover people against climate damage, including in Peru. It invests in local insurance companies and financial institutions, such as the local microfinance institution Caja Sullana in Peru, and provides technical expertise to assist them.

The Fund has enabled Caja Sullana to offer insurance against the consequences of floods and droughts for small farmers and small to medium-sized enterprises. Following two floods (including the flood in March 2017) and a drought, a total of 466 farmers and small business owners received 630,000 US dollars in insurance benefits. This has enabled farmers to rebuild and replant their fields, and it has enabled business owners to repair damaged buildings.

So far, the Fund has provided 89 million US dollars and technical assistance for 21 eligible insurance providers and other companies that offer climate risk insurance to poor and vulnerable households and small enterprises in developing countries.

In order to enable the Fund to develop even more insurance products, it was opened for private investors in mid-2017. Private investors have since contributed 30 million US dollars. In the long run, the target is for the Fund to protect about 100 million poor and vulnerable people in developing countries through its current and future investments.

Farmer in South Africa
Cooperation in action

Implementation – the InsuResilience Solutions Fund

The InsuResilience Solutions Fund (ISF), a key component of the InsuResilience Global Partnership, was established by KfW on behalf of the BMZ. KfW has charged Frankfurt School of Finance & Management with managing the project and backing it up with academic expertise.

The Fund's purpose is to give needy households with a daily income of less than 15 dollars better protection against climate and natural disaster risks.

It offers demand-based, data-based climate risk research and advice on the ground. This facilitates the financing of comprehensive climate risk analyses, such as studies on the economics of climate adaptation for specific geographical areas. Such studies are a key element of climate risk management. They enable the relevant local partners to assess in more detail the potential threats and damage to be expected from specific climate risks, to identify cost-effective adaptation measures, and to explore which insurance solutions might be useful.

The Fund seeks to help players to turn new ideas and strategies for climate risk insurance into actual insurance products. To that end, the Fund supports, by co-financing the product development costs, the development and introduction of tailor-made climate risk insurance for households and businesses and for municipal and governmental infrastructure. These activities are pursued within the framework of broader climate risk management strategies, which also include actions for adaptation to relevant climate risks.

For instance, the Fund signed a support agreement with the South African Land Bank Insurance Company and with Celsius Pro to give small farmers easier access to agricultural insurance. The ISF grant is used to partly finance the development and market introduction of an innovative index-based insurance scheme for small farmers in South Africa. By 2021, the scheme is to cover some 240,000 people.

Through its unique approach, the Fund supports joint initiatives by local partners, the insurance industry and NGOs, so as to harness the expertise of the insurance sector and to ensure that climate risk insurance products really match demand and will be sustainable.

Awareness raising on weather insurance in Mumbwa, Zambia
India/Zambia/Paraguay/Madagascar: Cooperation in action

Development of insurance markets

As part of the InsuResilience Global Partnership, the German Development Ministry supports activities to develop insurance markets in India, Zambia, Paraguay and Madagascar.

India

A project in India supported under the InsuResilience Global Partnership seeks to make the market more sustainable through the introduction of innovative climate risk insurance. In this context, "innovative" means that insurance becomes more affordable and accessible for poor and vulnerable people. The target group consists mainly of farmers, labourers and owners of small businesses. It is planned to broaden the target group step by step. The project will expand the protection provided by insurance so far, and introduce new technologies.

Activities in India address two main aspects. First, there is a focus on offering insurance against natural disasters. By using parametric methods, insurance is to be provided in rural areas for floods, droughts, cyclones and earthquakes. This natural disaster insurance is to be linked to group loans and will be sold through microfinance institutions. Potential clients of such combined products are farmers, labourers and owners of small businesses. The products are expected to provide quick financial assistance to borrowers when a natural disaster hits, so as to prevent people from resorting to negative coping strategies, or at least reduce the number of instances in which that happens. Negative coping strategies include using up all one's savings, selling assets such as livestock, and borrowing from informal lenders at exorbitant interest rates.

The second aspect is the conceptual development of satellite-based flood index insurance. Some initial efforts to map flood events based on free satellite data (for instance from the earth monitoring satellites Sentinel-1 and Sentinel-2) have been carried out jointly with the German Aerospace Center (DLR). Efforts are also under way to develop an automated flood detection system as a basis for the payment of insurance benefits. Satellite-based flood index insurance enables low-income and vulnerable households in developing and emerging economies to get more affordable and comprehensive protection against income loss.

Zambia

In Zambia, more than 53 per cent of the workforce work in the agricultural sector. Most of them are smallholders with less than five hectares of land who have few resources to hedge production risks. Weather events such as a rainy season that starts late, periods of drought, inadequate and irregular rain, but also excessive rain can lead to high crop losses.

Weather insurance can help them to reduce these risks and increase their resilience. This is addressed by a project supported under the InsuResilience Global Partnership which fosters the sustainable development of the agricultural insurance market in Zambia.

Since the 2013–14 season, NWK Agri-Services, a cotton company, has been offering index-based weather insurance based on satellite data to cover dry periods, droughts and heavy rains.

This voluntary insurance scheme does not rely on subsidies for premiums. Under a contract farming model, NWK advances the premiums for the smallholders, together with other agricultural inputs such as seeds and fertiliser.

The farmers, in turn, make a commitment to sell their cotton to NWK at the end of the season. Their earnings from the sale of the cotton and the potential disbursements from the weather insurance are used to pay off the loan. Any surpluses are paid out directly to the farmers.

The insurance scheme can give small farms the security and confidence to make more investments. This translates into bigger volumes of cotton that companies such as NWK can buy, thus also strengthening the company's business model.

Since 2016, the BMZ has been financing activities in Zambia geared towards strengthening demand and supply in the climate risk insurance market. Insurance companies such as Mayfair and Hollard and agricultural companies such as NWK and Alliance Ginneries receive assistance as they develop sustainable climate risk insurance schemes. In addition, NWK entered into a three-year development partnership under the BMZ's develoPPP.de programme in June 2018.

Between 2013–14 and 2018–19, 84,000 such insurance contracts were concluded with NWK and other agricultural enterprises. During the last major drought in 2016, some 23,000 beneficiaries received payments. In addition, Alliance Ginneries concluded a portfolio weather insurance contract for the 2018–19 season to cover 20,000 hectares of land that are farmed by 18,000 small farmers on the basis of contract farming for Alliance Ginneries.

On the supply side, capacity is being built at local insurance companies so that more of them are able to offer weather insurance for small farms. This is done through workshops and the provision of targeted advice on product development. Two local insurance companies are planning to start offering weather insurance in the 2019–20 season.

Efforts have also been undertaken to strengthen understanding of agricultural insurance on the demand side. Farmers receive training on agricultural insurance. Information is also provided through posters and flyers and via mobile phones.

A man on a field in Paraguay with manioc roots

Paraguay

Agriculture is one of the most important sectors of the economy for Paraguay's approximately seven million people. It accounts for about 26 per cent of gross domestic product and employs some 40 per cent of the people. Nearly one third of the country's poor people live in rural areas. They are increasingly confronted with the consequences of climate change. According to the international EM-DAT disasters database, floods, storms and droughts are the most frequent extreme weather events in Paraguay – and their frequency is increasing, as is the damage they cause.

In order to enhance rural people's resilience to disasters, Germany has been supporting the FortaleceRES project through its development cooperation since 2016. The project focuses on developing agricultural, climate and life insurance products in eastern Paraguay. It targets primarily small farms, which are often run by women.

Under the project, the country's public agricultural bank (Crédito Agrícola de Habilitación, CAH) is developing index-based weather insurance for its loan clients. If an extreme weather event occurs, they receive payments which enable them to respond more quickly and effectively to a disaster.

Another key partner for the project is the social affairs secretariat (Secretaría de Acción Social, SAS). It is planning to provide the 13,000 beneficiaries of a life and disability insurance programme with a disaster insurance that would also protect them against heavy rains and extreme drought. And the ministry of agriculture and animal husbandry (Ministerio de Agricultura y Ganadería) and the national insurance supervisory authority (Superintendencia de Seguros) are receiving advice on various forms of agricultural insurance.

The PROCADENAS project, which is being co-financed by the EU, is a cooperative endeavour of the BMZ and the Paraguayan animal husbandry ministry (Viceministerio de Ganadería, VMG) to foster diversified, sustainable small livestock production. The purpose of this effort is to strengthen various small livestock value chains, such as beekeeping, the keeping of goats and sheep, and fish farming. This is to be achieved, among other things, through improved risk management.

The first results of risk analyses that have been carried out show that health hazards such as animal diseases, climate risks (especially droughts and freezes) and market risks such as price fluctuations and smuggling have a negative impact on value chains. On the basis of these findings, sustainable insurance solutions and financial products are being developed for producers and other players along the value chains.

Insurance is an instrument that facilitates risk transfer. This means that it can make investment in a given value chain more sustainable. It helps small producers to respond better and more quickly to disasters. Generally, insurance thus contributes to the development of resilient value chains. Further aspects addressed by the project include the promotion of sustainable production methods, integration in national and international markets, and promotion of a stronger dialogue between the public and private sectors.

FortaleceRES and PROCADENAS thus contribute towards expanding the InsuResilience Global Partnership, which was launched at COP23 in Bonn in 2017 and has the aim of insuring, by 2020, an additional 400 million poor and particularly vulnerable people in developing countries against climate risks.

Madagascar

Due to its geographical location and its people's dependency on natural resources, Madagascar is very vulnerable to the impacts of climate change. The agricultural sector, the country's most important industry, is particular affected. Agriculture is also a major source of livelihood for most of the country's poor.

Within the framework of the InsuResilience Global Partnership, PrAda, a project for the adaptation of agricultural value chains to climate change, began to provide support to the dissemination of climate risk insurance in early 2018. This helps players along value chains to protect themselves against income loss from climate- and weather-related events.

Innovative climate risk insurance products are being developed in three southern regions – Androy, Anosy and Atsimo-Atsinanana. The main partners of the project are the agriculture ministry of Madagascar (Ministère de l'Agriculture et de l'Elevage) and insurance regulators and national insurance companies.

The cooperation between the InsuResilience Global Partnership and PrAda focuses on providing expertise in support of the key stages of project delivery in Madagascar, supporting capacity development with regard to insurance market development and index-based insurance, and disseminating the findings of the project internationally.

Rice harvest in Bangladesh
India: Cooperation in action

Satellite technology protects rice farmers against crop failure

In 2017, after a severe drought, more than 200,000 small farmers in Tamil Nadu, India, received compensation from the national crop insurance programme. The damage was measured quickly and precisely through satellite technology, which made it possible to compensate farmers swiftly for their lost rice crop. The response was based on the RIICE project.

RIICE stands for Remote Sensing-based Information and Insurance for Crops in Emerging Economies. The project was set up in 2012 and has been assisting South-East Asian countries and India in swiftly responding to imminent crop failure and enhancing farmers' income security. The initiative involves monitoring rice cultivation areas and insuring them against extreme weather events. It evolved from a partnership between Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), Swiss Re, the International Rice Research Institute (IRRI), sarmap SA (a software company), and the Swiss Agency for Development and Cooperation (SDC).

Some 90 per cent of the world's rice is produced in Asia. Many farmers' livelihoods there depend on rice. However, the entire region is faced with extreme weather conditions: floods, typhoons and droughts are very common, frequently wiping out entire harvests. RIICE enables small farmers to take out efficient crop insurance, making it possible to provide financial compensation quickly and providing governments with the necessary information for their emergency response.

In 2015, large sections of Tamil Nadu were flooded, destroying the newly planted fields of more than 400 rice farmers. Thanks to satellite data, it was possible to estimate the damage within a few days and provide farmers with new seedlings.

Two years later, Tamil Nadu was hit even harder. The worst drought in more than 140 years left the entire region parched. Thanks to information from RIICE, more than 200,000 rice farmers received an average of 195 euros each within three months to make up for their lost crops. Without the data, compensation would have taken up to a year.

Gagandeep Singh Bedi, the highest-ranking government official for agricultural affairs in this South Indian state, said: "RIICE remote sensing technology (...) allows us to assess crop loss and damages in a more transparent and timely manner. This was particularly useful during the last cropping season to identify villages that had been hit by drought (...) in a record time."

Farmers in Ethiopia
Ethiopia: Cooperation in action

Getting regions ready for climate change – the Rural Resilience Initiative

Under its special initiative ONE WORLD – No Hunger, Germany finances (through KfW) the expansion of the Rural Resilience Initiative (R4), which was founded by the United Nations World Food Programme (WFP) and Oxfam. The new regions to be added to the programme are Tigray and Amhara in Ethiopia. They are faced with particularly extreme changes resulting from climate change. The project is part of the G7 InsuResilience initiative.

R4, which pursues a holistic approach, comprises four measures to improve the way in which people cope with the consequences of climate change and extreme weather events. It provides economically and financially sustainable drought insurance for local people, and it helps to launch measures for erosion control and water retention to better cope with heavy rains, so as to make target groups less vulnerable to risks. Moreover, small farms can get micro loans to diversify their sources of income, for instance by buying bees to produce and market honey. Finally, training is provided to help farmers improve their savings practices, so they can build financial reserves to help them deal with crop loss.

In addition to this comprehensive approach, R4 comprises one more innovative element: through an insurance-for-work scheme, the poorest farmers can pay for their premiums through labour.

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Topic "Climate change and development"

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