Climate Risk Insurance in Pacific Small Island Developing States: Possibilities, Challenges and Vulnerabilities


  • Opinion by Raghbendra Jha (canberra, australia)
  • Inter Press Service

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

See https://www.cgdev.org/publication/are-pacific-islands-insurable-challenges-opportunities-disaster-risk-finance

See https://info.undp.org/docs/pdc/Documents/PSC/PC%20%20Prodoc%20Final%2017%20Dec%20(signed%20copy).pdf

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

© Inter Press Service (2022) — All Rights ReservedOriginal source: Inter Press Service



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