Climate Insurance Fund

Transcription

1 Climate Insurance Fund An innovative approach to safeguard against extreme weather events in developing countries Frankfurt, 5 th July, 2013 Monika Beck Director Competence Center Financial Sector Development and Global Funds Bank aus Verantwortung

2 Climate Insurance Fund Rationale (I): The role of insurances 1. Challenge Climate Change Increases in droughts, floods, hurricanes and weather-caused natural disasters because of climate change Form differs regionally DCs particularly affected due to their geographic location In ICs safeguarding against rare extreme weather risk through insurances Private households (e.g.. building, household contents) Companies (e.g.. Interruption of operations, crop failure) Municipalities (e.g.. roads, bridges) 2

3 Climate Insurance Fund Rationale (I): The role of insurances 2. Role of Insurances Pricing of risk Give economic incentives to adaptation investments by the level of the insurance premium itself by reducing the insurance premium in case of adaptation efforts Economic motive to correctly estimate extreme weather risks Relief for of the state as insurer of last resort But: in DCs only limited access to insurances (just pilot projects) 3

4 Climate Insurance Fund Rationale (II): Experiences with pilot projects in DCs 1. Extreme weather insurances for (communities of) states e.g..: Caribbean Catatstrophe Risk Insurance Facility (CCRIF) African Risk Capacity, drought insurance for Africa 2. Extreme weather insurances for nationale central governments, e.g.: FONDEN (Mexico) Nationale Drought Insurance for Ethiopia Macro 3. Extreme weather insurances for municipalities, e.g.: El Nino Southern Oscillation (ENSO) Insurance (Peru) 4. Extreme weather insurances for cattle, coop. with local ins., e.g.: Index-based livestock insurance (Mongolia) Meso 5. (Micro-) crop insurance with an extreme weather component, e.b.: Area Yield Index Insurance, Agricultural Insurance Company of India (AIC) Compagnie Nationale d'assurance Agricole du Sénégal (CNAAS) Drought Index Insurance, Ghana Agricultural Insurance Pool (GAIP) Micro 4

5 Climate Insurance Fund Rationale (III): Lessons Learnt from pilot projects 1. Insurances against extreme weather risk need re-insurances and an adequate equity base. 2. Development of climate-related insurance products need a high level of insurance know-how. 3. Commercial interest of international insurers for DCs still low. Pilot projects in many cases not sustainable due to their small size. 4. Usually insurance rate benefits during product launch. Need to be temporally and restricted in size and incentive-compatible in design. 5. Regulatory Framework for climate-related insurance underdeveloped in DCs. 5

6 Climate Insurance Fund Conception: Principles of the Climate Insurance Fund 1. Establishment of a lean fund: Allows to take even small equity stakes in the start phase in an cost efficient manner. Capital increases promptly possible when needed. Scalable in case of success. 2. Cooperation with private reinsurers. 3. Principles for equity investments of the fund: Focus on successful, scalable projects Contributes to market development by developing financially sustainable examples Projects on micro-, meso-, and macro-level 4. Flanking of equity investments with consultancy and training measures for product development, if necessary financial literacy. 6

7 Climate Insurance Fund Transparent and lean fund structure Governance-Structure BMZ und others reporting and implementation provides fiduciary funds consultant Investment Committee staffs KfW Transparent Governance Structure Positive experiences of KfW Legal certainty, low costs and flexibility Development Assistance Professional service provider (fund manager, lawyers etc.) Prepares investments decisions and approves them Board (min. 2 Directors with Mauritius as residence) staffs Management Shares Climate Insurance Fund Private company limited by shares (Global Business License) Investment pipeline Fund Management and Accounting Fund Administrator (Mauritius) 7

8 Investment example, macro-level African Risk Capacity Pool drought insurance for Africa motivation Many African Sub-Saharan countries affected by droughts in the last 10 years, especially countries at the Horn of Africa (2009/2010, 2004/2005, 2002/2003) Climate models forecast further increase in climate variability and the chance of droughts in Africa Drought often cause Collapse of agricultural production, A significant increase in poverty, Exposure to food unsecurity, Loss in economic development. 8

9 Drought Insurance for Africa Initiative of the African Union Conference of African Ministers of Finance (AU), 29th / 30th March, 2010 in Lilongwe Second Africa Ministerial Conference (AU) on Disaster Risk Reduction, 16th April, 2010 in Nairobi Jean Ping => Nkosazana Dlamini-Zuma, 15th October, 2012, ratification of the ARC-Initiative by the new AU commission president Call: Development of an instrument To measure the extent of droughts, To estimate the drought risk. Establishment of an African institution to safeguard against drought risk. 9

10 Drought Insurance for Africa Africa Risk View : drought risk and follow-up costs Rainfall / WRSI Satellite-based rainfall data with high resolution (10 square kilometers), Updating after 10 days, use of Water Requirement Satisfaction Index (WRSI) of FAO (gives evidence if the rainfall during the season came during the main growth phase) Exposure to droughts Grouping the population by the level of their exposure Estimation of follow-up costs Costs of support of the affected households in case of a drought 10

11 Drought Insurance for Africa Feasibility and institutional design Basis: World Bank / WFP / CaribRM-Studie ARC: Study on the Feasibility of a Regional Approach to Financing Drought Risk in Africa, IFPRI / University of Oxford: Cost-Benefit Analysis of the ARC, World Food Program /UNICEF: Food Security and Vulnerability Analisis Verification of the model by reinsurers / insurance supervisors Workshops, WFP with AU and 16 AU-member countries: Establishment of 2 organizations ARC O: AU-subdivision with own budget, Addis Abeba ARC F: legally independent insurance company, presumably Bermuda/Swizerland ARC O: Agreement on minimum standards for Drought Contingency Plans and examination of these Drought Contingency Plans as well as of national measures to strengthen disaster risk management 11

12 Drought Insurance for Africa Principles for ARC-F Insure extremes. No insurance for frequent small scale drought incidences Timely payment based on objectively comprehensible criteria: payment within 14 days Financial sustainability: with a min. probability of 90% should the cover fund be greater/ as big as by the time of establishment; positive returns after initial capitalization Affordable insurance rate through risk diversification / pooling: with an involvement of 16 African countries the cost of drought insurance are half the amount it would cost a single country to safeguard itself alone (e.g. because of re-insurance), with 6 countries still 35% below the cost of individual efforts. High complementarities: a) measures of national disaster risk management in the target countries (Disaster Risk Reduction Strategies), b) measure of adaptation of the agro sector to climate change, c) agro insurances for agriculture and small farmers, d) measures to improve access to credit and savings products. 12

13 Drought Insurance for Africa ARC F: basic points of the concept Capitalization: min. USD 400 Mio. Legal form: cooperative, several membership classes Head office: presumably Bermuda or Switzerland Board of Directors: 4 experts nominated by DFIs/donors, 3 experts nominated by the AU Efficient: Management by independent, professional insurance manager and by an investment manager Insurance licence / access to reinsurance market 13

14 Investment example, macro-level Regional Insurance Facility for Central America (RIFCA) Background Countries in Central America are particularly affected by extreme weather events (economic damages of on average ca. USD 3,3 bio) Business model RIFCA insures national state in Central America against specific outcomes of natural disasters Initiated by Inter-American Development Bank (IDB) and embedded in Integrated Disaster Risk Management : a) risk- / Vulnerability analyse, b) national adaptation strategy, c) sector action plans, d) national disaster funds, e) IDB Contigent Credit Facility, f) RIFCA 1 source: ODFA/CRED International Disaster Database, 14

15 Investment example, macro-level Regional Insurance Facility for Central America (RIFCA) Probability First line of defense: budget funds of the countries and IDB Contingent Credit Fascility (CCF) DR Disaster funds IDB Credit facility (CCF) RIFCA <2% 2-6% 6-10% RIFCA covers rare extreme weather events RIFCA-re-insurance: 100% of risk by tender in re-insurance market (Swiss Re syndicated) USD 150 Mio. max. USD 100 Mio. max. USD 50 Mio.* Ex-post Financing * Numbers for RIFCA-DR 15

16 Investment example, macro-level Regional Insurance Facility for Central America (RIFCA) Legal structure Individual insurance cell in every RIFCA-member state Cells work with the same operative environment (management, IT, re-insurance) Investment goal: cell of the Dominican Republic (RIFCA-DR) Previous partners (shareholder, stakeholder) IDB (Initiator, financing of consultancy measures, capitalization of RIFCA-platform) Swiss Re (consultancy in insurance matters and syndication) Outlook Insurance cells for Costa Rica, El Salvador and Guatemala 16

17 Investment Example, meso-level Microinsurance Catastrophe Risk Organisation (MiCRO) Background Damaging the success of micro entrepreneurs by destroying their means of existence after extreme weather events Business model Re-insuring of microfinance institutions (MFI), who offer insurance against climate risk for microcredit clients on their part Up to now: safeguarding of micro entrepreneurs on Haiti against hurricanes, floods and extrem rainfall MiCRO itself parametrically reinsured (currently to 100% by Swiss Re) Microcredit - client Damage based insurance Insurance rate MFI Re-insurance of MFI Insurance rate Basis risk capital MiCRO Re-insurance of the parametric risik Insurance rate Re-insurance 17

18 Investment example, meso-level Microinsurance Catastrophe Risk Organisation (MiCRO) Legal structure Limited liability and individualization of single insurance programmes: segregated cell company with head office on Barbados Previous partners (shareholder, stakeholder) Fonkoze, Mercy Corps, DFID, DEZA (funders) Swiss Re, CaribRM (consultancy in insurance matters ) Outlook Capital increase until end of 2013: ca. USD 5 Mio. Goals: a) geographic expansion: Indonesia, Philippines, Latin America (Brazil, Columbia etc.) b) Extension of the number of beneficiaries to ca until

19 Investment example, micro-level CNAAS and others Background Agriculture is an important economic factor and relevant employer in Senegal Agricultural production depends much on the more and more varying weather but: hardly any access to insurances against droughts, extreme rainfall or other extreme weather phenomena Business modell: specialized insurer for agriculture Compagnie Nationale d'assurance Agricole du Sénégal (CNAAS): Public Private Partnership between the Republic of Senegal, local insurance companies und World Bank (establishment 2008) Supplier of weather insurances for the Senegalese agriculture (product development with support of World Bank successfully finished) Re-insurance by Swiss Re 19

20 Thank you! Bank aus Verantwortung