Poor May Need Insurance Against Climate Change

By Linus Atarah

Inter Press Service - February 21, 2008

Original URL

HELSINKI, Feb 21 (IPS) - The poor may need insurance to deal with humanitarian needs arising from climate change, experts say.

Demands for humanitarian assistance will grow significantly, and the biggest cause is likely to be climate change rather than wars and internal conflicts, they say.

In 2006 the world experienced 427 natural catastrophes that affected about 143 million people, and the trend is rising, says Ulla-Maija Finskas, director of the department for humanitarian assistance in the Finnish ministry for foreign affairs.

These included 254 floods and related disasters, 43 percent higher than the 2000-2004 average, says Sir John Holmes, under secretary-general for humanitarian affairs and emergency relief co-ordinator at the UN Office for the Co-ordination of Humanitarian Affairs (OCHA).

According to the UN Intergovernmental Panel on Climate Change (IPCC), co-winner of the 2007 Nobel Peace Prize, there is strong evidence to suggest that extreme weather conditions attributed to global warming will force people to leave areas where land has become infertile and water sources scarce.

The IPCC says sea level rise would make large areas, and also some whole countries uninhabitable, and turn large numbers of people into climate change migrants. There are no precise projections, but some researchers say up to 50 million people could flee their places of origin due to climate change within the not too distant future.

"The poorest and most vulnerable who are the least responsible for causing global warming will be the ones most affected by its consequences," Holmes told IPS. "In the face of challenges like these we cannot stand still. We must start looking for new ways to tackle the problem, we must stretch our imagination and ingenuity."

Holmes says an insurance-based response should be explored. Since vulnerable people in places most likely to be affected by humanitarian disasters cannot afford insurance, donors could pay a small premium to insure them against extreme weather conditions. "It may be a more cost effective response than trying to raise money after the event."

Poor countries invariably face delay in receiving emergency aid. Often, by the time relief assistance arrives, people have exhausted their coping mechanisms.

Last year massive floods struck West and East Africa affecting an area the size of the United States, according to the OCHA. The floods caused 200 deaths, and displaced millions.

Governments in the affected countries were unprepared to organise an effective response. In Burkina Faso people in affected areas had not received relief aid a month after the floods struck, according to humanitarian assistance workers in the region. It was a similar story in 17 countries hit by the floods.

Insurance could provide cash to people in such situations automatically, Holmes said. "A hungry farmer who has lost his crops in a flood would need relief agencies for food, but if he has the money he doesn't have to depend on them."

Three years ago the World Food Programme (WFP) signed a contract with global reinsurance company AXA RE for a pilot project in Ethiopia to insure farmers against severe drought.

The pilot was developed by the WFP and the World Bank Commodity Risk Management Group to test out insurance against widespread destruction that threatens 17 million farmers in case of drought. Payout would be triggered when rainfall from March to October falls below a given minimum. The project has not been tested because there has been no severe drought the past three years.

Finskas concedes that insurance might provide timely relief, but warns against the "stingy" practices of insurance companies. "If one continuously breaks his or her car, the insurance bonus quickly disappears. So if drought occurs repeatedly, insurance companies might refuse to underwrite the costs," she said.

Insurance managers agree. "Insurance is based on unforeseen risks, but if drought or floods occur frequently, then it is no longer unpredictable," Veli-Pekka Kemppinen, insurance manager at the Finnish insurance company IF told IPS. "Insurance cannot cover such events."

Finskas warns also that given dwindling aid budgets, donor governments might decide to pay low premiums rather than increase aid. Helping developing countries build capacities to respond to disaster – as done in Mozambique -- is a better way to minimise damage, she said. (END/2008)

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