Though insurance mechanisms are key for resilience, insurance is not a magic bullet.
Gilda Charles is a Policy Advisor on Rural Resilience and Markets at Oxfam America.
Leaders of the seven most advanced economies gathered this week to address a wide-range of issues including how to support those most vulnerable to climate-related risks. To complement the efforts of developing countries to manage climate disasters, G7 countries committed to:
“Increase by up to 400 million the number of people in the most vulnerable developing countries who have access to direct or indirect insurance coverage against the negative impact of climate change related hazards by 2020.”
Oxfam America and the World Food Programme (WFP) recognized early on that insurance could play a potentially beneficial role in helping to build the resilience of vulnerable communities in the face of climate risks. In 2011, Oxfam and WFP joined forces to launch the R4 Rural Resilience Initiative – a strategic partnership to offer vulnerable households with access to a combination of four risk management strategies: improved resource management (risk reduction), micro-credit (prudent-risk taking), savings (risk reserves) and insurance (risk transfer). The program builds on the initial success of HARITA (Horn of Africa Risk Transfer for Adaptation), an integrated risk management framework developed by Oxfam America, the Relief Society of Tigray (REST), Ethiopian farmers and several other national and global partners. R4 focuses on mechanisms that can be integrated into social protection systems, including productive safety nets, so that the results can be applied at a much larger scale reducing costs for governments and donors from the disruptions caused by climate disasters.
Nearly five years of implementation experience have taught us that, when properly designed, insurance can serve as a key adaptation tool to help communities become more resilient in the face of climate shocks. Insurance mechanisms can also play a critical role in protecting vulnerable populations against asset loss. However, despite the potential benefits – insurance is not a magic bullet. Insurance is most effective when it is included as part of an integrated package of risk management interventions. Moreover, climate insurance should complement, not substitute, traditional community-level coping mechanisms and should be integrated into a coherent framework of national, regional, and international adaptation efforts.
In addition to highlighting the importance of risk transfer solutions in achieving an equitable solution to the climate crisis, G7 countries need to lead the way in championing a range of climate risk management interventions – bolstered by climate finance. Only through an integrated approach – rather than a cure-all, can we help communities not just survive one shock after another, but thrive despite shocks and uncertainty.