37th OESAI Conference

David Lesolle

University of Botswana.

Climate change in Africa and the role of insurance

37th Annual Conference on the theme: “Overcoming Barriers to Enhancing Regional Capacity in the

Insurance Industry”

Global warming, Climate change and Africa

• Growing evidence suggests that climate change is worsening through droughts and other severe weather events, such as cyclones, tornadoes, floods and wildfires. These natural disasters can destroy homes, cars, businesses and crops, leading to more and larger insurance claims.

Global warming, Climate change and Africa

• Insurers in some countries have stopped offering coverage, and others have limited what they cover. It’s also meant higher insurance premiums that many people cannot afford, leaving them uninsured or underinsured.

• Disasters Linked to Climate Change Could Cost Insurance Companies Dollars!!

• THE LAST ECONOMIC RECESSION WAS PROBABLY TRIGGERED BY CLIMATE RELATED EVENTS!!

Global warming, Climate change and Africa

• The insurance sector is going to be one of the hardest hit by climate change, from rising claims to losses on investments.

• The winners in this sector will be those companies that understand the risks and opportunities facing their businesses, and embed it into their strategies and operations

Climate change and insurance

• There are several barriers to climate change adaptation: financial, institutional, social/cultural, technological and informational.

• Increased realisation that available funding may not always be sufficient to cover the financial requirements of rehabilitation, mitigation and adaptation, specifically in case of extreme events

• Therefore, Insurance may be an instrument worth exploring

Climate change and insurance

Ask how the risk of such an extreme event occurring has changed due to external factors

Scoping and Identifying options:

Identify risks and vulnerabilities; develop

objectives; establish criteria and indicators

ANALYSE OPTIONSidentify options; assess risks and evaluate

tradeoffs

IMPLEMENT OPTIONSImplement decisions; monitor and

learn

Climate change and insurance

• Insurance as: an instrument for providing ‘risk-cover’ against the impacts of climate change and variability, specifically for extreme weather events.

• Exploring the tool• Creation of viable insurance markets requires risk pooling and

reinsurance mechanisms• The former might require pooling across sectors and even countries• The latter might require access to a source of funds that is generated

through automatic contributions

• Possibilities• Public-private partnerships• Disaster risk insurance

Key concepts – understanding climate change adaptation

• AdaptationAdjustment in natural or human systems in response to actual or expected climatic stimuli or their effects. Types of adaptation include anticipatory and reactive adaptation, private and public adaptation, and autonomous and planned adaptation

• Adaptive Capacity The ability of a system to adjust to climate change (including climate variability and extremes) to cope with the consequences

• Sensitivity Sensitivity is the degree to which a system is affected, either adversely or beneficially, by climate-related stimuli.

• Vulnerability The degree to which a system is susceptible to, or unable to cope with, adverse effects of climate change.

If we are to insure – we must also measure

What should be measured?• Hazard• Risk• Exposure• Vulnerability • Impacts • Adaptation intervention• Effectiveness of adaptation intervention

Climate change and insurance

• The most common factor limiting uptake is the low density of weather stations, particularly in Africa.

• There is an urgent need to determine how contracts can be designed to meet the needs of very vulnerable groups, especially women.

• In the longer term, a more intractable challenge is the rising levels of risk as climate change gathers pace.

What happens next – key take home messages

Refine insurance as the tool for providing risk cover against climate change and variability

Ensuring the tool meets the emerging demands and challenges exacerbated by climate change

The African tool must be a premium and achieve:• Quicker and simpler payouts• Different approaches for different countries and differing adaptation

responses• Aim for a widespread adoption to minimize transaction costs

Climate change is here and here to stay

Thank you for your kind attention.