Making a case for an insurance-based approach to strengthen climate resilience

Embracing an insurance-based approach fosters collaboration between the public and private sectors. [iStockphoto]

As the world grapples with the escalating impact of climate change, the need for robust strategies to enhance climate resilience has become more pressing than ever.

Rising sea levels, storms, prolonged droughts, and other climate-related events are causing unprecedented damage to communities, economies, and ecosystems worldwide.

In the face of these challenges, policy makers must seek innovative solutions that not only mitigate the impacts of climate change but also provide a safety net for those affected.

An insurance-based approach to climate resilience emerges as a strategic and pragmatic solution that offers multifaceted benefits for individuals, businesses, and governments alike.

Traditional approaches to climate resilience have often been reactive, focusing primarily on post-disaster relief and reconstruction efforts.

While essential, these measures fail to address the underlying issue of vulnerability to climate-related events.

Climate change is projected to up the frequency and intensity of extreme weather events. This calls for the shift from reactive approaches to proactive ones that prioritise risk reduction and preparedness.

An insurance-based approach enables the transfer of risk from individuals, businesses, and governments to insurance providers.

This approach ensures costs of recovery are not disproportionately borne by the affected parties. This is critical for vulnerable communities and developing nations that lack resources to cope with large-scale disasters. Insurers have a vested interest in reducing the frequency and severity of climate-related events, as it directly impacts their bottom line.

This creates a powerful incentive for insurers to collaborate with policyholders to implement risk-reduction measures, such as building resilient infrastructure, adopting sustainable land-use practices, and improving disaster preparedness. Insurance firms heavily rely on data to assess risks and set premiums. This emphasis on data collection and analysis can be leveraged to enhance understanding of climate vulnerabilities and inform evidence-based policymaking.

By partnering with insurers, policymakers can gain access to comprehensive risk assessments that can guide the allocation of resources to develop targeted interventions.

Embracing an insurance-based approach fosters collaboration between the public and private sectors. Governments can work with insurance firms to design and implement resilience-building initiatives, leveraging the expertise, financial resources, and risk management strategies on the table.

Swift and effective recovery from climate-related disasters is key in minimising economic disruptions.

Insurance payouts can expedite the restoration of livelihoods and businesses, helping communities rebound quickly - reducing the overall economic impact of climate-related events.

This approach has been successful in cushioning pastoralists from the loss of their livestock to drought. Kenya paid insurance cover of Sh255 million to cushion 17,000 livestock keepers in Wajir, Garissa, Samburu, and Tana River against drought between October 2022 and February 2023.

The writers are General Manager – Reinsurance and Resident Actuary respectively at Minet Kenya