Editing IPCC:AR6/WGII/Chapter-9 (section)

==== 9.11.4.1 Climate Insurance ====

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African countries and communities are inadequately insured against climate risk. Insurance penetration is less than 2% of GDP ( [[#Swis%20Re--2019|Swis Re, 2019]] ) and 90% of natural catastrophe losses were uninsured in Africa in 2018 ( [[#Swis%20Re--2019|Swis Re, 2019]] ) leaving a large risk protection gap. The cost of reinsurance in Africa’s most mature insurance market—South Africa—has increased since 2017 due to climate-related payouts ( [[#SAIA--2018|SAIA, 2018]] ; [[#Simpson--2020|Simpson, 2020]] ), ''which is expected'' to further reduce the extent of insurance coverage. Emerging trends that seek to address this gap include innovative weather and drought index-based insurance schemes to transfer risk, forward-looking climate data and models to manage risk and insurers transitioning from risk transfer providers to proactive risk managers.

The most significant area of climate risk insurance innovation has occurred in weather and drought index-based insurance schemes that pay out fixed amounts based on the occurrence of an event instead of full indemnification against assessed losses (Table 9.12). However, despite the relatively low cost, uptake remains low due to affordability constraints, lack of awareness, access to and trust in products, distribution challenges, basis risk, poor transparency, challenges regarding the integration of complementary interventions (e.g., access to improved inputs or informal savings/credit) and poor perceptions/norms of insurance and risk transfer. Lack of data and models further hinders insurers’ ability to price risk correctly, which reduces value to clients ( [[#Greatrex--2015|Greatrex et al., 2015]] ; [[#Di%20Marcantonio--2017|Di Marcantonio and Kayitakire, 2017]] ; [[#WEF--2021|WEF, 2021]] ). Impact assessments point to potential but remain context-specific ( [[#Awondo--2019|Awondo, 2019]] ; [[#Hansen--2019b|Hansen et al., 2019b]] ; [[#Noritomo--2020|Noritomo and Takahashi, 2020]] ). In addition, there is no comprehensive overview of the number of people covered by such schemes, nor of the value they provide in terms of actual claims payouts. Lastly, donor and/or public funds still play an outsized role in launching and/or sustaining these schemes and schemes beyond weather and drought remain limited (Table 9.12).

'''Table 9.12 |''' Insurance opportunities to mitigate climate risk.

{| class="wikitable"
|-
! '''Initiatives'''

! '''Drought/'''

'''heatwave'''

! '''Flood'''

! '''Cyclone'''

! '''Fire'''

! '''Example'''

! '''Policyholders/ beneficiaries'''

! '''Reference'''

|-
| ''Index and parametric schemes— smallholder farmer''

| X

| X

|
| ACRE Africa, Pula, R4 Rural Resilience Initiative, KLIP, FISP, Ghana Agricultural Insurance Pool, Oko Crop Assurance

| Smallholder farmers

| [[#Greatrex--2015|Greatrex et al. (2015)]] ; [[#CTA--2019|CTA (2019)]] ; [[#Global%20Index%20Insurance%20Facility--2019|Global Index Insurance Facility (2019)]] ; [[#WFP--2020|WFP (2020)]] ; [[#Fava--2021|Fava et al. (2021)]] ; [[#OKO%20Finance--2021|OKO Finance (2021)]] ; [[#Pula--2021|Pula (2021)]] ; [[#Tsan--2021|Tsan et al. (2021)]]

|-
| ''Index and parametric schemes – sovereign and sub-sovereign''

| X

| X

| X

|
| African Risk Capacity

| Governments

| ARC (2019)

|-
| ''Index and parametric schemes – global''

| X

| X

|
| African and Asian Resilience in Disaster Insurance Scheme (ARDIS)

| Individuals and smallholder farmers

| Global Parametrics (2018)

|-
| ''Risk management and data collaboration''

| X

| X

| X

| X

| UNEP PSI

Santam

Tripartite Agreement

| Insurers and reinsurers, local municipalities, governments

| [[#Santam--2018|Santam (2018)]] ; [[#Forsyth--2019|Forsyth et al. (2019)]] ; [[#UNEP-FI--2019a|UNEP-FI (2019a)]] ; InsurResilience (2020); [[#Simpson--2020|Simpson (2020)]]

|-
| ''FinTech''

| X

| X

|
| X

| Lumkani, WorldCover, Econet, PlaNet Guarantee

| Individuals, smallholder farmers

| [[#Greatrex--2015|Greatrex et al. (2015)]] ; Hunter et al. (2018); [[#CTA--2019|CTA (2019)]] ; [[#UK%20Space%20Agency--2020|UK Space Agency (2020)]] ; [[#Tsan--2021|Tsan et al. (2021)]]

|}

Insurers and their clients are often unaware of their risk exposure, partly due to data and modelling gaps. Climate information services and related collaborations are increasingly helping to address this problem (see [[#9.4.5|Section 9.4.5]] ). Climate change attribution methods to estimate the contribution of human-casued climate change to the cost of parametric insurance offers possibilities for a sharing of the premium between the impacted African country and a global climate fund, such as the GCF ( [[#New--2020|New et al., 2020]] ). Technology companies and start-ups (including FinTechs) are also emerging as solutions to fill risk gaps, leveraging new approaches to data and technology through the use of sensors, drones and satellite imaging to speak to mainly agricultural risks, but also urban risks such as informal settlement fires, exacerbated by heat and drought (Table 9.12).

Ten African insurers formally committed to help manage climate risk on the continent through the Nairobi Declaration of the UNEP Principles for Sustainable Insurance (PSI) in 2021 ( [[#UNEP%20PSI--2021|UNEP PSI, 2021]] ). Some early examples of public–private partnerships with municipalities and governments to better manage climate risk are also emerging (Table 9.12).

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