Insurance is one of the risk-transfer instruments that can compensate climate-related damages. In 1991, the Pacific island nation of Vanuatu proposed an International Insurance Pool to address the financial losses small island and low-lying developing countries face from climate change-induced losses. While that proposal was rejected, it highlighted the importance of a pooled fund for addressing direct damage from climate change.

Between two countries with similar per-capita income, the one with a higher level of insurance coverage is more resilient to extreme natural events, according to studies. Hardly surprising, given that insurance-related solutions can help victims recover quickly, preventing them from falling into, or deeper into, poverty.

Insurance payments are also quicker and more reliable than disaster aid. For example, the Caribbean Catastrophe Risk Insurance Facility (CCRIF) paid over $50 million to seven Caribbean countries within 14 days of Hurricane Irma devastating the region.

The CCRIF offers earthquake, tropical cyclone and excess rainfall policies to Caribbean and Central American governments. A similar mechanism exists in Africa through the African Risk Capacity (ARC), which recently paid $26 million to Mauritania, Niger and Senegal after severe droughts. Both the CCRIF and ARC aim to transfer the burden of natural disaster costs from governments to markets to ensure quick and effective response.

Allianz SE published this content on 06 November 2017 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 06 November 2017 10:28:02 UTC.

Original documenthttps://www.allianz.com/en/press/news/commitment/environment/171106_COP23-islands-at-risk/

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