The Next Time the Water Rises
7 October 2010
The El Nino/La Nina-related monsoon floods that have devastated Pakistan since July highlight the fast growing need for an international risk transfer mechanism for weather-related events.
With the sheer size and protracted duration of the disaster, as well as donor
fatigue, disaster response funding has fallen far short of the mark in Pakistan’s time of need. UN Secretary General Ban Ki Moon bemoaned the fact that too little aid is coming too late to help the estimated 21 million homeless and flood-affected people of Pakistan.
How could an international insurance mechanism within the UNFCCC process help in case of such events? The first step is to link serious risk reduction measures to wider climate risk management strategies.
The second is to ensure that an international insurance approach, supported by the international community, catalyses adaptation and risk management in countries facing rising climatological risks. The benefits
should include incentives focused on risk reduction, and advance planning for adequate
financial resources when and where they are needed.
Experience has shown that insurance mechanisms can make payouts rapidly. In the Caribbean, CCRIF insurance payouts were the first to reach Haiti after the calamitous earthquake – a month before humanitarian donations began flowing.
One challenge is the difficulty of guaranteeing that insurance payouts will be used
effectively and appropriately by participating governments. One way to address this concern is to establish national climate change funds to serve as the recipient of
international insurance payments. Bangladesh has such a fund, governed by a multistakeholder committee (rather than a government ministry). In this approach, payment distribution modalities can be devised before disaster strikes. This also complements wider adaptation strategies by encouraging the coherence of risk management strategies and ex ante planning.
Chapter 2, paragraph 8 of the AWG-LCA text considers the establishment of international insurance coverage as one function of a broader mechanism to address loss and damage from climate change. Devastating events – the flooding in Pakistan is an exemplary case – underscore the urgency. This kind of mechanism should be one of the operational elements of the adaptation framework negotiated in the UNFCCC process and should be financed from a share of international funds provided for adaptation.
Finally, setting up regional pilot programs through fast-start finance could generate important lessons on the specific operational modalities of such a mechanism. That will catalyse adaptation, promote more effective risk management, and support humanitarian efforts in vulnerable countries.