InsuResilience Global Partnership is a multi-stakeholder partnership bringing together G20 nations which consist of governments of the most influential industrial countries and emerging economies, the governments/representatives of V20, academia, private sector and international organisations in one collective goal. The goal of this global partnership is to strengthen the resilience of vulnerable people who are most affected by the impact of severe natural disasters. Also, ensuring that these vulnerable individuals have the necessary tools to combat climate change and disasters. The provisions made for developing countries are insurance, finances and wider resilience tools which are directly focused on the assistance of persons affected by disasters.
The Vulnerable 20 (V20) was established through an inaugural meeting of the Group of 20 (20) Finance Ministers of Vulnerable Countries. V20 countries are comprised of ministers from countries whose economies are vulnerable to climate change. The member countries are most affected by climate change and have the highest level of climate risk or need for disaster management. While, the G20 countries consist of the governments and central banks from the most developed countries, representing 90% of the Gross world product and 80% of world trade. One of the main focuses of both groups is climate change and finding ways to combat this ever-present threat.
The Sendai Framework is an agreement focused on Disaster Risk Reduction (2015-2030). UN member states adopted the framework at the Third UN World Conference in Sendai City, Miyagi Prefecture, Japan. This framework aims for proactivity amongst member states to ensure that disaster risk does not affect development goals. The Sendai Framework works cohesively with other global frameworks to guarantee disaster risk reduction throughout the world. It advocates for the substantial reduction of disaster risk and losses in lives, livelihoods, health, and in the economic, physical, social, cultural, and environmental assets of persons, businesses, communities, and countries.[1]
The Paris Agreement is a global framework that came into force at the 21st Conference of the Parties (COP) to combat climate change. This policy framework set a precedent as the first universal legally binding climate change agreement. Further to this, the agreement aims to limit global warming by below 2 degrees Celsius, in the hope of avoiding the worst effects of climate change. Achieving this will be done through the reduction of the average global temperature to 1.5 degrees Celsius. According to the United Nations Climate Change (UNCC), “the agreement entered into force when a total of 55 parties, which would have accounted for at least an estimated 55% of the total global greenhouse gas emissions, deposited their instruments of ratification, acceptance, approval or accession with the depositary.”[2]
As the frequency and intensity of natural hazards such as hurricanes, droughts, and tropical storms steadily increase across the world, the world’s vulnerable groups continue to be significantly impacted by them. Climate Disaster Risk Finance and Insurance (CDRFI) provides a financial safety net against the damage caused by natural disasters to people’s livelihoods, businesses, infrastructure and public finances by extreme weather events.
Ex-ante Finance and ex-post finance are CDRFI risk financing tools. Ex-ante finance occurs before the natural hazard, or the event and Ex-post finance is finance after an event or hazard occurs. Ex-ante covers risk reduction measures, risk transfer and forecast based on the projected damage or loss of the event. Ex-post finance mainly highlights risk retention and finance; for example, they examine emergency and disaster contingency funds, reserve funds and contingent emergency response component and humanitarian assistance.
Disaster risk reduction (DRR) is the concept and practice of reducing disaster risks through systematic efforts to analyse and reduce disasters’ causal factors. Reducing exposure to hazards, lessening vulnerability of people and property, wise management of land and the environment, and improving preparedness for adverse events are examples of disaster risk reduction United Nations International Strategy for Disaster Reduction (UNISDR).1 DRR aims to implement multifaceted approaches to reduce and focus on development planning, limiting the impact of future hazards.
Disaster Risk Management (DRM) is defined as applying disaster risk reduction (DRR) policies through actions that aim to achieve reduced disaster risk. DRM is applied to reduce the vulnerability of societies to natural hazards which will limit the disastrous effects. Disasters cannot be avoided; the main concept of DRM is implementing effective mitigation strategies by attempting to address all potential risk factors.
According to UNISDR (2015) [3], it includes strategies designed to:
- avoid the construction of new risks
- address pre-existing risks
- share and spread risk to prevent disaster losses from being absorbed by other development outcomes and creating additional poverty.
The Caribbean Disaster Emergency Management Agency (CDEMA) has developed CDM, an innovative concept for reducing risks associated with natural disasters and climate change aimed at enhancing regional sustainability. CDM is defined as the management of all hazards through all phases of the disaster management cycle – prevention and mitigation, preparedness, response, recovery and rehabilitation – by all peoples- public and private sectors, all segments of civil society and the general population in hazard-prone areas. CDM involves risk reduction & management and integration of vulnerability assessment into the development planning process.” (CDERA, 2001, 2006).
The CCRIF SPC (formerly the Caribbean Catastrophe Risk Insurance Facility) was formed as the first multi-country risk pool in the world and was the first to successfully develop parametric policies backed by both traditional and capital markets. The facility is owned and operated by the governments in the Caribbean. Given the frequency and intensity of natural hazards in the region, the facility is designed as a regional catastrophe fund for Caribbean governments to provide short-term liquidity to regional governments when a policy is triggered by natural hazards such as hurricanes, earthquakes and excess rainfall. The facility offers catastrophe coverage with the lowest possible pricing.
Risk pooling is a form of disaster risk financing solution, in which sovereign countries are able to pool resources in parametric insurance that alleviate the event of disasters. This helps the government deal with the aftermath of disasters, enabling them to respond effectively without heavy reliance on external assistance. In 2007, CCRIF SPC (formerly known as the Caribbean Catastrophe Risk Insurance Facility) was formed as the first multi-country risk pool globally and was the first insurance instrument to successfully develop parametric policies backed by both traditional and capital markets.[4]
According to Burton, Robert and Gilbert (1978), [5] natural hazards are hazards with an element of human involvement, notwithstanding the term ‘natural’. [5] This definition thinks of disasters in three different stages,
- Physical event
- Hazardous event
- Natural Disaster
Physical events such as a hurricane that does not affect people can be considered a natural phenomenon. Whereas a hazardous event is a natural phenomenon that happens in a populated area. The third phase is when the hazardous event impacts the lives of individuals and results in property damage; this is considered a natural disaster. The Organisation of American States (OAS) states “this definition differs from the unavoidable havoc wreaked by the unrestrained forces of nature. It shifts the burden of cause from purely natural processes to the concurrent presence of human activities and natural events. [6] “Though it is important to note human intervention plays a major role in the frequency and the impact of natural disasters, human intervention may cause disasters where none existed, and humans reduce the effect of natural ecosystems which causes human-induced natural hazards.
National Geographic defined drought as a period when an area or region experienced below the normal precipitation levels.
The National Drought Mitigation Center [7]outlines four types of drought:
- Meteorological Drought is defined usually based on the degree of dryness (in comparison to some “normal” or average amount) and the duration of the dry period.
- Agricultural Drought links various characteristics of meteorological (or hydrological) drought to agricultural impacts, focusing on precipitation shortages, differences between actual and potential evapotranspiration, soil water deficits, reduced groundwater or reservoir levels, and so forth.
- Hydrological Drought is associated with the effects of periods of precipitation such as shortfalls on surface or subsurface water supply (i.e., streamflow, reservoir and lake levels, groundwater).
- Ecological Drought this is where there is a deficit in available water supplies.
Parametric insurance is a type of index-based insurance that protects the vulnerable from unpredictable weather patterns destroying their assets. For instance, in some geographies, claims are paid out based on actual meteorological conditions measured by weather stations or satellites. With this type of insurance, the customer is protected against the occurrence of a specific event by paying a set amount based on the magnitude of the event as opposed to the magnitude of the losses. An example is a policy that pays $100,000 if an earthquake with magnitude 5.0 or greater occurs.
“The Climate Risk Adaptation and Insurance in the Caribbean project which seeks to address climate change, adaptation and vulnerability by promoting weather index-based insurance as a risk management instrument in the Caribbean. The project has developed two parametric weather index-based risk insurance products aimed at low-income individuals and lending institutions exposed to climate stressors.[8]” The two types of parametric insurance developed under CRAIC are the Livelihood Protection Policy (LPP) which targets individuals and the Loan Portfolio Cover (LPC) which targets lending institutions.
The Livelihood Protection Policy (LPP) is a weather index insurance product which affords protection to individuals, organisations and institutions against financial losses resulting from heavy rainfall and strong winds. This is facilitated through establishing an index for rainfall and windspeed in a chosen area of coverage; once an event occurs that either breach a pre-defined trigger level, a cash disbursement is released to the insured party within a specific period.
The Loan Portfolio Cover (LPC) is an insurance instrument that transfers risks arising from natural catastrophes to international risk pooling markets. As a parametric insurance policy designed to protect loan portfolios from climate shocks and eventual loan default, the LPC helps financial institutions better manage their credit systems[9]”.
