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Last Updated: Tuesday, 14 November 2006, 21:12 GMT
Climate insurance urged for poor
By Richard Black
Environment correspondent, BBC News website, Nairobi

Woman and children wading through flood-water (Image: AP)
Insurance schemes would deliver financial support much quicker
The UN wants insurance companies to help protect the world's poor against the impacts of climate change.

Insurance-based schemes could make money available to affected communities much faster than traditional aid, its climate meeting in Nairobi was told.

A pilot project in Ethiopia earlier this year insured 62,000 rural families against drought.

Computer models of climate change suggest droughts and floods will become more common across Africa.

Current extreme weather events on the continent affect most severely the livelihoods of people with no access to conventional insurance.

"Every year, the World Bank donates millions in order to repair events and to repair disasters; and we need a step change in the way we manage relief for poorer parts of the world," said Thomas Loster of the Munich Re Foundation, a not-for-profit organisation linked to the re-insurance giant.

"Through public-private partnerships that match seed money from public sources with the skills of the private sector, I believe we can do this by realising new kinds of risk cover across large parts of the developing world."

Poor harvest

The pilot project in Ethiopia shows how such schemes could work in practice.

Using money provided by the US government, the Ethiopian administration and other donors, the World Food Programme (WFP) brokered a deal with the Axa Re insurance company to obtain cover for 62,000 rural families against drought.

The insurers agreed that below a certain minimum of rainfall, they would pay $7m within a matter of days, to be spent on food aid or payments to farmers. The premium paid was $930,000.

As it happened, rainfall stayed above the threshold, and Axa Re kept its money. But WFP's Peter Smerdon believes the project shows how poor communities can gain relief quickly.

"The big advantage is it's much faster," he told BBC News.

"Normally, you see a disaster coming, you wait for it to get there, you go and assess the damage, you go and see what you need, you appeal to donors, you have to get the food and assistance in there; and that can take months."

By that time, he observed, farmers might have lost their livestock, sold their farming equipment, and eaten their seeds.

Subsequently, they must rely on international assistance to restore living standards, which is much more expensive in the long run as well as much more damaging to people's lives.

Disastrous costs

The United Nations Environment Programme (Unep) has set up a forum with 165 banks, insurers and asset managers worldwide to find ways of dealing with the costs of climate change.

In a new report, released at the meeting, they concluded that the costs of weather-related disasters would inevitably rise in the coming years.

"Somewhere in the next 30 years, there will be a year where the total costs of these disasters will exceed $1 trillion," said Unep's Executive Director, Achim Steiner.

"This is one of the reasons why climate change is now getting so much attention. It is economically very much a concrete risk factor; and it is of such magnitude that it threatens whole industries and whole sectors in the economy."

While big insurance companies are well aware of the risks, delegates said, ideas to insure the poor were still in their infancy.

The WFP project in Ethiopia was, said Peter Smerdon, "the first time that risks have been transferred from a developing nation to the developed world, ie the people who own the insurance company".




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