By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®
NEW YORK---Historically, talking adaptation is tantamount to an admission of failure when it comes to climate change. It meant that all the efforts by nonprofits and scientists and politicians to reduce greenhouse-gas emissions and prevent climate change haven't worked. Well, for what it's worth, the importance of adaptation was the major message of a meeting of experts and insurers in New York on Monday, Sept. 20, for Climate Week NYC.
As well as risk transfer as an important facet of any adaptation strategy.
"Insurance can be a key element in the adaptation story," said Andrew Steer, special envoy on climate change for the World Bank.
Adaptation involves preparing for and protecting against the symptoms of climate change. It can involve managing the spread of disease due to climate change, developing drought-resistant crops to help the agricultural industry, or finding ways to sustain economic growth in the face of dwindling supply--the three crucial adaptation tasks in coming years, according to Christiana Figueres, executive secretary for the UN Framework Convention on Climate Change, who was the keynote speaker at the Climate Week NYC seminar.
In the developing world, where the effects of climate change are now being felt, insurance has already played a supporting role in the story. Witness the Caribbean Catastrophe Risk Insurance Facility (CCRIF), whereby 16 Western Hemisphere governments pool their exposure against hurricane and earthquake risk through traditional insurance and the capital markets.
Witness the growing microinsurance efforts around the world. One pilot program in particular, in Ethiopia, highlights how insurance and risk management can be layered on top of local social safety nets, reported Ray Offenheiser, president of Oxfam America. The pilot has been successful in selling weather insurance to farmers in five villages but could be scaled to reach millions.
Insurance could be a crucial adaptation mechanism for the developing world for several reasons, as outlined by Matthias Weber, a member of the group management board of Swiss Re, which also sponsored with Oxfam and Columbia University the Ethiopian microinsurance project (and supports the CCRIF). As much as 12 percent of a developing nation's GDP could be impacted by climate change, while insurance currently only has a 1 percent to 3 percent penetration in the developing world. The price points and innovative product designs of microinsurance best suit this market.
Weber and others spoke on the panel of the "Risk and Resiliency" seminar, an event that helped to kick off Climate Week NYC, in part sponsored by Swiss Re.
One could of course argue that Swiss Re and other insurers are not acting from the bottom of their hearts in speaking out about adaptation. They stand to make money from microinsurance and climate-related insurance products.
One could counter that by reminding the reader that insurance companies stand to lose a lot of money, too, as more and more extreme weather events occur and cause ever-increasing billions of dollars worth of property damage.
But why argue when climate change experts are inviting, even pleading with, insurance companies and other private-sector enterprise to come make money off effective adaptation.
"We can and must harness the powers of markets to drive adaptation solutions," Offenheiser said.
That said, insurance is only one tool in the box.
"You cannot insure away the problem," Steer said.
As even the insurance executive Weber admitted. Crucial to any adaptation strategy is a partnership between private and public entities.
"In my opinion, the private and the public really need to work together," Weber said.
If anything, the private sector might need to even push the public sector to do more. "The momentum cannot be led by governments," said Figueres.
September 24, 2010
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