[Event Recap] COP29: From Vulnerability to Resilience – Insuring Protection From Climate Change

On November 14, 2024, the World Bank Group hosted a panel discussion titled From Vulnerability to Resilience – Insuring Protection From Climate Change at the World Bank Group Pavilion at COP29, Baku, Azerbaijan. The session explored the role of insurance in helping communities, small businesses, and farmers build resilience against climate shocks. Moderated by Pablo Saavedra (Vice President, Prosperity vertical, World Bank Group), the panel featured Leila Benali (Minister of Energy Transition and Sustainable Development, Morocco), Isaac Anthony (CEO of the Caribbean Catastrophe Risk Insurance Facility [CCRIF] SPC); and Amy Barnes (Head of Climate and Sustainability Strategy, Marsh).

Opening the discussion, Pablo Saavedra highlighted critical gaps in the global supply of climate finance and insurance coverage. In emerging economies (except China), only 16% of climate finance is directed to adaptation and the insurance gap is 90% (the insurance gap globally is 76%). These deficits underscore the urgency of innovative financial tools to enhance financial resilience. The discussion also delved into the challenges of uncertainty in the context of climate risks and designing solutions that can adapt to evolving threats.

Leila Benali shared Morocco’s experience with its Solidarity Fund (Fonds de Solidarité contre les Évènements Catastrophiques [FSEC]), a public-private initiative aimed at covering vulnerable, uninsured populations against natural catastrophes. She spoke about how the fund uses risk layering to ensure financial resources are available to protect uninsured and vulnerable populations. Leila highlighted Morocco’s response to the earthquake in 2023, where the Fund unlocked $300 million through a combination of reserves and parametric insurance payouts. Leila also stressed upon the critical role of data in designing insurance products, and the need for tailored, affordable insurance solutions, particularly as climate-related risks make indemnity insurance increasingly expensive.

Isaac Anthony discussed how CCRIF SPC, by offering parametric insurance products that trigger payouts based on predefined thresholds—such as wind speed or rainfall intensity, enables quick liquidity for affected governments and communities. He highlighted CCRIF’s sector-specific products, including those for fisheries and agriculture, which address unique vulnerabilities of primary producers and other value chain players in the Caribbean. He also emphasized the need for partnerships, including collaborations with organizations like the World Food Programme, to extend the benefits of insurance to social protection programs.

Amy Barnes provided insights from the private sector, focusing on the interplay between predictability and uncertainty in designing insurance products. While insurance works best when risks are uncertain and diversified, climate change is shifting some risks toward certainty, which complicates traditional insurance models. Barnes advocated for anticipatory payouts through parametric insurance, which allow communities to act before disasters occur. She also highlighted the role of microinsurance and public-private partnerships in closing the protection gap, particularly for marginalized groups. Barnes stressed the importance of incorporating externalities in insurance pricing to signal and drive resilience investments.

The discussion concluded with reflections on how to scale these solutions globally. The speakers agreed that addressing uncertainty through robust data collection and tailored risk models is critical. They emphasized the need to integrate insurance with broader risk management and resilience measures, such as early warning systems and investments in resilient infrastructure to make climate risks more insurable.

Key Takeaways

1. Addressing predictability vs. certainty: The increasing frequency and intensity of climate-related disasters challenge traditional indemnity insurance models. Balancing the predictability of climate risks with the uncertainty of evolving threats is essential for designing effective insurance solutions.
2. Data is indispensable for effective climate risk insurance and resilience planning: Data empowers governments, insurers, and communities to make informed decisions and scale solutions effectively, closing protection gaps and enhancing resilience. Robust data collection ensures accurate risk modeling, facilitates anticipatory action through parametric insurance, and supports the integration of insurance with broader risk management and resilience measures.
3. Bridging the insurance gap: The global protection gap highlights the need for innovative, scalable solutions, especially in emerging economies where insurance coverage remains very low.
4. Sector-specific approaches: Insurance mechanisms should target vulnerable populations and specific sectors like agriculture, fisheries and even livestock to address their unique needs.
5. Leveraging partnerships: Public-private collaborations are vital for extending the reach and effectiveness of insurance solutions, ensuring they meet the needs of the most vulnerable.