Climate Insurance: Explained
What does it do?
Climate Insurance provides financial protection to stakeholders in the event of climate-related disasters like droughts, floods, and heatwaves. This can be given to governments (from international agencies like the World Bank) or to individuals and businesses (from government or private banks) in return for an insurance premium. When climate finance is given to governments, climate insurance has the phenomenal benefit of allowing swift response to climate disasters; imagine how much devastation could have been avoided if rescue authorities did not need to conduct donation drives first.
Has climate insurance worked for other countries?
Yes! Multiple low-income countries have successfully used it to protect vulnerable communities:
- India: In 2017, the government launched the Pradhan Mantri Fasal Bima Yojana (PMFBY) crop insurance scheme, which covers farmers against losses due to weather-related events such as droughts and floods. The scheme has benefited millions of farmers across the country, with a payout of over $10 billion between 2016 and 2020.
- Senegal: In 2014, the Senegalese government launched the African Risk Capacity (ARC) insurance scheme, which provides coverage against droughts and other weather-related events. Since its inception, the scheme has paid out over $50 million to Senegal, helping the government to provide timely assistance to affected communities.
- Ethiopia: In 2017, Ethiopia launched the R4 Rural Resilience Initiative, which provides weather-indexed insurance to farmers against droughts and other weather-related events. The initiative has benefited over 13,000 households across 43 villages, with a payout of over $1 million in 2019.
Has Pakistan used it?
In 2014, State Bank of Pakistan launched CLIS (Crop Loan and Insurance Scheme) which protected small-scale farmers of wheat, rice, maize, sugarcane and cotton from floods and drought. However, two main problems existed; firstly, this insurance was only available for those farmers that had availed a loan from a registered bank in Pakistan. What about those struck by tragedy without the foresight to be indebted to a local bank? Considering only 19% of adult Pakistanis have registered bank accounts, and of those, even fewer take loans, limiting insurance policies to that minority is not socially just. In addition, the exclusion of nomadic herd-keeping communities deepens the impact of climate crisis; in 2022, the loss of 800,000 livestock during the floods pushed the price of meat in the open market to a record high.