Climate risk insurance is a type of

insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...

designed to mitigate the financial and other risk associated with climate change, especially phenomena like

extreme weather Extreme weather or extreme climate events includes unexpected, unusual, severe, or unseasonal weather; weather at the extremes of the historical distribution—the range that has been seen in the past. Often, extreme events are based on a loca ...

. The insurance is often treated as a type of insurance needed for improving the

climate resilience Climate resilience is defined as the "capacity of social, economic and ecosystems to cope with a hazardous event or trend or disturbance".IPCC, 2022Summary for Policymakers .-O. Pörtner, D.C. Roberts, E.S. Poloczanska, K. Mintenbeck, M. Tignor, ...

of poor and developing communities. It provides post-disaster liquidity for relief and reconstruction measures while also preparing for the future measures in order to reduce

climate change vulnerability Climate change vulnerability (or climate vulnerability or climate risk vulnerability) is defined as the "propensity or predisposition to be adversely affected" by climate change. It can apply to humans but also to natural systems ( ecosystems). H ...

. Insurance is considered an important

climate change adaptation Climate change adaptation is the process of adjusting to current or expected effects of climate change.IPCC, 2022Annex II: Glossary öller, V., R. van Diemen, J.B.R. Matthews, C. Méndez, S. Semenov, J.S. Fuglestvedt, A. Reisinger (eds.) InClimat ...

measure. Critics of the insurance, say that such insurance places the bulk of the economic burden on communities responsible for the least amount of

carbon emission Greenhouse gas emissions from human activities strengthen the greenhouse effect, contributing to climate change. Most is carbon dioxide from burning fossil fuels: coal, oil, and natural gas. The largest emitters include coal in China and larg ...

s. For low-income countries, these insurance programmes can be expensive due to the high start-up costs and infrastructure requirements for the data collection. It is theorised that high-premiums in high risk areas experiencing increased climate threats, would discourage settlement in those areas. These programmes are also usually timely and financially inadequate, which could be an uncertainty to national budgets. A considerable problem on a micro-level is that weather-related disasters usually affect whole regions or communities at the same time, resulting in a large number of claims simultaneously. This means that it is needed to be sold on a very large, diversified scale. However a well-designed climate risk insurance can act as a safety net for countries while improving resilience. The international community invested in developing further support for this kind of insurance through the InsuResilience Global Partnership launched at

COP23 The 2017 United Nations Climate Change Conference (COP23) was an international meeting of political leaders, non-state actors and activists to discuss environmental issues. It was held at UN Campus in Bonn, Germany, during 6–17 November 2 ...

. That group, supports regional programs such as Climate Risk Adaptation and Insurance in the Caribbean (CRAIC) and international organizations like the Munich Climate Insurance Initiative. The ACT Alliance published a guidebook for equitable and climate justice oriented model for climate risk insurance in 2020.

Types of climate risk insurance

Flood insurance

The rising climate change related risks, such as

sea level rise Globally, sea levels are rising due to human-caused climate change. Between 1901 and 2018, the globally averaged sea level rose by , or 1–2 mm per year on average.IPCC, 2019Summary for Policymakers InIPCC Special Report on the Ocean and Cry ...

, floods and windstorms, threaten the livability and affordability of the impacted areas. This is why one of the more widely used forms of climate risk insurance is

flood insurance Flood insurance is the specific insurance coverage issued against property loss from flooding. To determine risk factors for specific properties, insurers will often refer to topographical maps that denote lowlands, floodplains and other areas tha ...

, which provides coverage against loss caused by

flood A flood is an overflow of water ( or rarely other fluids) that submerges land that is usually dry. In the sense of "flowing water", the word may also be applied to the inflow of the tide. Floods are an area of study of the discipline hydrol ...

ing.

References

Climate change adaptation Climate justice {{Climate-change-stub