Women in Sofala Province, Mozambique, who are still being supported by the World Food Programme one year after the devastating cyclone Idai.

Indirect insurance

Indirect insurance, also referred to as macro insurance, is taken out by governments. When damage occurs, they receive payouts and use these financial resources to assist those in need.

Humanitarian organisations may assist governments and complement such insurance schemes by increasing the amount of insured damage through a replica policy. Governments can take out insurance, either individually or as part of regional risk pools, to get protection against climate and disaster risks. In a pool, several countries in a given region take out insurance together, thus diversifying risk and reducing premiums. This is making climate risk insurance more affordable.

Indirect climate insurance often relies on index-based or parametric solutions. This means that payments are not based on the actual loss incurred but on a trigger (such as wind force or precipitation levels) that leads to the disbursement of a predefined payment. This makes index-based insurance quicker and more cost-effective when it comes to processing benefit payments for the insured.

One important climate risk management tool is the development of contingency plans that come into effect immediately in an emergency and contain clear definitions of responsibilities and processes. This facilitates the quickest possible assistance for the people affected by a disaster. Some insurance products, for instance those offered by the African Risk Capacity (ARC), make it mandatory for clients to draft such plans.

Germany has played a major part in the establishment of three regional risk pools in Africa (ARC), the Caribbean (Caribbean Catastrophe Risk Insurance Facility, CCRIF) and the Pacific (Pacific Catastrophe Risk Assessment and Financing Initiative, PCRAFI). In addition, Germany supports several global and regional implementation programmes that provide technical and financial assistance for the further expansion of such risk pools and for various indirect insurance schemes. Such global implementation programmes include the Global Risk Financing Facility (GRiF), the InsuResilience Investment Fund (IIF), the InsuResilience Solutions Fund (ISF), and the Natural Disaster Fund (NDF). Then there are further regional implementation programmes, such as the Asia-Pacific Climate Finance Fund (ACliFF) (External link), a programme set up by Germany and the Asian Development Bank that targets developing countries in Asia.