At the end of the day, the insurance industry is a business. But they are also a risk pool. So while they may be companies with stockholders and CEOs with a bottom line, they are still risk shares that are meant to minimize damage impacts amongst their insured customers. But as the insurance industry becomes savvier with personalized data about who to insure and how much to charge them – customers should ask themselves whether they can really trust their insurance company to be less of a capitalizing business and more of a safety net against damage.
As climate change damages rise, big insurance companies have begun to calculate risk costs with extreme weather events in mind. This calculation development has put insurers like Munich Re and Willis Re on the forefront of early action planning and early risk warning conversations at COP23. These two insurance companies are currently in partnership with InsuResilience. InsuResilience is a recently launched UN initiative that operates as a financial mechanism to buoy those who are vulnerable to climate change.
As a financial mechanism, InsuResilience will operate as a climate risk insurance provider to vulnerable people groups. This could occur directly with smallholder farmers or governments themselves. They have multiple programs and insurance plans that can provide service for small countries or service for small farmers. InsuResilience says that their plans will have the means to provide for “rapid emergency assistance and reconstruction, as it can very quickly disburse cash to the insured party.” The website claims that they will provide an effective and proactive approach to extreme weather events compared to the reactive measures taken by humanitarian charity efforts. Their unique position to act quickly could “save lives, protect livelihoods and assets, and safeguard development gains.”
As it affects developing countries and their campaign to receive compensation for climate change loss and damages, InsuResilience is a boon. InsuResilience allows developing and vulnerable countries to minimize the detrimental effects of climate change. In that way, InsuResilience follows a basic risk pooling example as countries pool their resources to protect and rebuild after an extreme event. For example, Cook Islands, Marshall Islands, Tonga, Samoa, and Vanuatu have pooled their resources into the Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI) Insurance. PCRAFI proved itself to be a successful program when Tropical Cyclone Pam hit Vanuatu in 2015. Because of PCRAFI, Vanuatu was able to receive a US$1.9 million cash pay out. Vanuatu received its funds within one week of Tropical Cyclone Pam and Vanuatu was able to use those funds to support their recovery process by mobilizing nurses into the affected provinces. PCRAFI is just one of the regional programs that InsuResilience supports. InsuResilience works with African Risk Capacity (ARC), Global Index Insurance Facility (GIIF), India, Caribbean Catastrophe Risk Insurance Facility (CCRIF), and more. But PCRAFI is also being “complemented by reinsurance provided by Sompo Japan Nipponkoa Insurance, Mitsui Sumitomo Insurance, Tokio Marine & Nichido Fire Insurance, Swiss Re, and Munich Re.” PCRAFI is not unique in that its funds are being complemented by private insurers. Granted, this position is not unique – but private insurers are taking a larger role in Climate Change than just reinsurance.
So while PCRAFI, its counterparts, and InsuResilience are providing vulnerable people groups safety nets against the financial costs of climate change damages – it is still being funding by private insurers. While private insurers are not inherently “nefarious”, the capitalist goals behind their operation provide a shadow of whether developing countries can trust these insurance companies to be less of a capitalizing business and more of a safety net against climate change damage.