Climate change jeopardizes socioeconomic stability, and sets back efforts at development. The increasing frequency and severity of climate-change-driven disasters threaten lives and livelihoods, food security, water supply, property security, and economic prosperity across the globe. Adaptation is vital to make society resilient to the impacts of climate change. Adaptation means increasing our ability to recover from specific disasters; reducing vulnerability and promoting resilience (both physical and financial) to catastrophe. Insurance can be a key tool in both these aspects of adapting to climate change. First, it provides the flow of capital to support communities and infrastructure to recover from disasters. Without adequate insurance, the burden of paying for losses falls largely on individual citizens, governments or aid organizations, with significant impact upon already straining government budgets, and economic and social hardship for those affected. Countries with high insurance cover recover faster from disasters, and increasingly, governments are recognizing the role and benefits of insurance in transferring risk from disasters. Yet there is a large and even widening ‘protection gap’ of underinsurance. Second, insurance contributes to the wider understanding of climate-change risks, and helps promote measures that individuals and communities can use to improve their protection from climate-change-driven disasters. For example, insurance expertise in risk evaluation helps to make the economic case for flood defences, or for changes to how and where buildings are constructed. Using insurance is a step away from crisis towards risk management, and it strengthens socio-economic resilience under a changing climate. However, it is only one of the available disaster-risk financing mechanisms. It thus needs to be considered within a broader fiscal framework that also includes international assistance, catastrophe debt drawdowns, and other financial securities, disaster reserves and budgets. Furthermore, insurance and other disaster risk financing mechanisms are only part of the solution: they need to be integrated into other resilience and adaptation measures as part of a comprehensive climate adaptation strategy. In this report, we make recommendations to maximize the benefits of insurance for climate adaptation:
Recommendation 1: Invest in open-source models that provide a long-term view of climate risk and link to insurance solutions.
Recommendation 2: Joined-up policy-making to put climate-risk models at the heart of national adaptation strategies.
Recommendation 3: Develop consistent climate adaptation regulation and standards across countries.
Recommendation 4: Foster insurance innovations that can respond to a changing climate risk landscape.
Recommendation 5: Strengthen dialogue between insurers and policy-makers around Build Back Better.
Recommendation 6: Converge insurance, humanitarian and development agendas.
Recommendation 7: Promote and invest in risk literacy throughout society