Australia urged to support Pacific ‘climate insurance scheme’

Australia urged to support Pacific ‘climate insurance scheme’ | Insurance Business

Australia urged to support Pacific ‘climate insurance scheme’
As the third annual United Nations world conference on disaster risk reduction draws to a close, three Australian climate change and environmental academics are proposing the use of a model already used in the Caribbean.

In a whitepaper titled 'Writing the Fine Print: Developing Regional Insurance for Climate Change Adaptation in the Pacific,' Dr Jeffrey McGee, Dr Liam Phelan and Joseph Wenta of the University of Newcastle, New South Wales have urged developed countries such as Australia, New Zealand and the US to support a similar scheme in the Pacific.

“A similar scheme is urgently required for the Pacific region to assist countries like Vanuatu to cope with the immediate aftermath of events such as Cyclone Pam,” they wrote on academic website The Conversation this week.

They highlight the creation of the Caribbean Catastrophe Risk Insurance Facility (CCRIF), which was set up by 13 small island nations in the Caribbean region in 2007.

The member countries take out yearly insurance with the facility to provide property damage insurance to cover losses up to US$100 million. The facility takes out reinsurance on the international reinsurance markets at a better rate than individual countries acting alone.

The insurance is based on a ‘parametric trigger’ such as a nominated wind speed, and insurance monies can be paid out within weeks for disaster relief and rebuilding damaged infrastructure.

There is no need for a country to show that climate change was a cause of the cyclone or extreme precipitation event, the authors said.

“The other important feature of the CCRIF is that the amount paid out to countries under the insurance is pre-determined by modelling of damage caused by similar earlier events,” they said.

“This means that there is no need for an assessment of damage after the event to determine the extent of loss and the amount to be paid out.”

Since the CCRIF was formed, it has paid out 12 claims for hurricanes, earthquakes and excess rainfall totalling approximately US$35.6 million to eight member states.

In the whitepaper, they outlined the benefits of such a scheme in the Pacific, not just to the island nations.

“Regional insurance schemes are thus a tangible means by which developed countries such as Australia, Japan, New Zealand and the US might contribute short to medium-term funding to improve the adaptive capacity of the small island states of the Pacific,” the whitepaper said.

“This also has a pragmatic benefit for developed countries of reducing potential exposure for disaster aid payments to developing countries in the immediate aftermath of climate change-related extreme weather events.”

A spokesperson for the Insurance Council of Australia noted that they would need more information on a fully fledged version of this scheme before Australian insurers could commit.

“The Insurance Council of Australia (ICA) is aware of the regional risk pilot scheme operating in the Pacific region, which was developed by the Asian Development Bank and referred to in the paper “Developing regional insurance for climate change adaptation in the Pacific”.

“The ICA would need details of any proposed full scale version of the scheme for the Pacific to consider the role that could be played by Australian insurers.”

The authors said the scheme should work successfully under the UN Framework Convention on Climate Change (UNFCCC).

“Such a regional insurance pooling mechanism would remain consistent with burden sharing principles that inform the operation of UNFCCC and assist in building state resilience to climate-related disasters in the Pacific.”

Citing the Asian Development Bank pilot scheme, which ends this year and includes Vanuatu, Samoa, Tonga and the Marshall Islands, the authors call for a long term solution.

“The Pacific region requires a wider and more permanent institution to provide this support for all Pacific Island nations into the future,” they said.

Read the whitepaper here.