‘Robust evidence’ supports role of insurance as disaster risk-management tool

Apr 04, 2012 by Adrian Hönig in  Baden-Baden Meeting

The transition of risk transfer to a central concept in climate adaptation has continued to gather pace with the Intergovernmental Panel on Climate Change (IPCC) acknowledging there is now “robust evidence” risk-transfer instruments can help enable the recovery of governments, households and businesses in the aftermath of disasters.

The extent of the focus of the IPCC’s full report, Managing the Risks of Extreme Events and Disasters, published this week, has highlighted the extent to which concepts of insurance and other forms of risk transfer have become increasingly interlinked with developments in the disaster risk-management community.

“Insurance and other forms of risk transfer can be linked to disaster risk reduction and climate change adaptation by enabling recovery, reducing vulnerability and providing knowledge and incentives for reducing risk,” the report said.

The IPCC also revealed plans to present the report, which cites thousands of scientific studies and received 18,784 outside expert and government review comments, to London’s insurance market.

But while the report highlights the extent to which the international community has helped risk transfer become reality in developing countries at local, national and international levels, it warns the future is still uncertain.

Within the report’s 580 pages, it warns of the importance of insurance being linked to disaster risk reduction and climate adaptation measures – when insurance is provided without adequate risk reduction, it can be a disincentive for adaptation, the study warned.

At the centre of managing risks from climate extremes and disasters is the creation of a culture of safety, which the IPCC report said must start with the assessment of risk factors and the development of information systems that provide the relevant information for decision-making.

The study indicates governments can better prepare people for changing climate-related disaster risks by generating and communicating robust information about the dynamic nature of these risks.

Even without robust information, “no regrets” and “low-regrets” strategies can be adopted to help adaptation begin – measures which can include microinsurance and weather index-linked schemes.

The IPCC acknowledges governments are increasingly using risk-transfer mechanisms to protect financial security, with government disaster reserve funds and intergovernmental risk sharing – including through mechanisms that pool risk – highlighted for their capability to provide much-needed relief and immediate liquidity in regions where individual countries cannot have viable risk insurance schemes.

The report also calls on governments to review resilience-building efforts, with the disruptions caused by disaster providing an opportunity for reconsidering development through reconstruction and disaster risk reduction.

Government appreciation of the importance of disaster risk reduction is increasing, as demonstrated by the inclusion of the subject on the G20 agenda for the first time at this May’s meeting of government leaders.

Rowan Douglas, chief executive of Willis Re Analytics, this week called for the subject to become a regular feature of G20 agendas with governments required to forecast climate and environmental risk alongside the economic risk forecasts they regularly issue.

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