Center for American Progress

RELEASE: CAP Report Makes the Case for How to Expand Insurance Coverage in Developing Countries to Better Manage Climate-Related Risk
Press Release

RELEASE: CAP Report Makes the Case for How to Expand Insurance Coverage in Developing Countries to Better Manage Climate-Related Risk

Washington, D.C. — At the G-7 annual summit in June 2015, President Barack Obama and leaders of other developed nations zeroed in on the need to help developing countries access insurance programs in order to manage climate risks. The group set a lofty goal of increasing access to insurance against climate-related risks for 400 million new people in some of the most vulnerable developing countries over the next five years.

The Center for American Progress released a report today that shows how parametric insurance—policies that use environmental measurements, such as wind speed or volume of rainfall, to trigger immediate insurance payouts—would improve the developing world’s ability to respond quickly and efficiently to extreme weather events and maintain enough capital to properly rebuild infrastructure in a more climate resilient way.

“Climate finance initiatives are going to be a major component of the negotiations for a new international climate agreement that will conclude in Paris in December. The expansion of climate-related risk insurance provides an avenue to help address the issue,” said Pete Ogden, CAP Senior Fellow and co-author of the report. “Parametric insurance helps vulnerable nations cope immediately with the fallout from extreme weather events—which will become more prevalent as the effects of climate change become more common, acute, and severe. For vulnerable nations that may not have the capacity to fund years of rebuilding, let alone meet their countries’ immediate needs, this could mean the difference between weathering the proverbial storm or being debilitated by it.”

Unlike a typical indemnity insurance policy, in which payouts only occur after in-person damage assessments are completed, parametric insurance pays out immediately once certain environmental criteria are met. While indemnity insurance requires a great deal of time during which policyholders must jump through many bureaucratic hoops, parametric insurance immediately provides vulnerable nations with the resources to conduct initial cleanup, pay for rescue and first responders, or feed their citizens. This leaves much-needed capital reserves on hand to rebuild damaged infrastructure, often in a way that is more resilient against future climate risks.

Click here to read the report.

For more information on this topic or to speak with an expert, contact Tom Caiazza at [email protected] or 202.481.7141.