CANBERRA, Australia, Apr 14 (IPS) – The World Bank lists Fiji, Kiribati, Marshall Islands, Federated States of Micronesia, Nauru, Palau, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu as Pacific Small Islands Developing States (PSIDS). . Some listings also include the Cook Islands, Niue and Tokelau. In September 2019, these countries had a combined population of 2.3 million spread over hundreds of islands spread over an area roughly equivalent to 15% of the surface area of the earth. Of these, the most populated country – Fiji – has a population of 900,000. The World Bank’s World Development Indicators reveal that annual per capita GDP of these islands fell from $4,340 in 2018 to $3,768 in 2020. It has probably fallen further during the pandemic.
The incidence of informality of economic activity is around 60 to 85% in Melanesia and Micronesia countries and is increasing in Polynesian countries. More than half the workers are in the informal sector. A majority of these are women and/or have low levels of education. Therefore, it would be difficult for them to negotiate complex insurance contracts. Further, most climate insurance disasters are quite debilitating so that there the longer the delay in executing the insurance obligations the higher is the loss to the individuals. This would lead to dis-saving on the part of individual to meet their consumption needs. This would then reduce the resources available for investment and growth. Therefore, even a single climate disaster can have effects well beyond its immediate effect on humans and property.
A measure to complement individual insurance is aggregation of risks with the insurance being taken out by higher level entities. For instance, a tripartite partnership among insurers, aid agencies and the government can be created so that a country-specific risk pool can be created. This requires that the payout triggers be well defined.
There are clear advantages to making comprehensive housing insurance to be made compulsory for all income groups. Policyholders could also be encouraged to aggregate risks through cooperatives, credit unions and the like. Finally, the insurance policy can be held by the government or other national or international agencies. Payouts can be used to accommodate government services and maintain post-disaster programs.
If these provisions were accepted, then it would follow that quite a bit of the premium for insurance would have to be paid for by international aid. Multilateral aid would be preferred to bilateral aid as many of the insuring agencies could well be located in donor countries creating complex problems of moral hazard. In contrast, the use of multilateral aid would be more hands off.
The case for providing insurance rapidly remains strong. Keeping this in mind, the UNDP has designed a climate risk insurance product for six PSIDS. However, much remains to be done. Clearly any long-term meaningful insurance policy should not be viewed in isolation but should be embedded in a broader policy of providing climate change relief for PSIDS.
Raghbendra Jha is Professor of Economics and Executive Director, Australia South Asia Research Centre, Australian National University
This article draws on my article co-authored with D. Jain, A. Chida, R.D. Pathak and S. Russell “Climate risk insurance in Pacific Small Island Developing States: Possibilities, challenges and vulnerabilities – a comprehensive review”. See https://link.springer.com/article/10.1007/s11027-022-10002-z
This further supports the general case for an increase in multilateral aid. See https://onlinelibrary.wiley.com/doi/10.1111/j.1467-9701.2004.00596.xhttps://www.preventionweb.net/news/new-insurance-product-aid-fight-against-climate-change-pacific
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