Climate Risk Insurance: Considerations for Operationalising Micro and Meso-level Premium Support

  • January 09, 2024


Climate Risk Insurance (CRI) solutions can strengthen the financial resilience of individuals and households (micro-level), enterprises, institutions (meso-level), and countries (macro-level) against climate risks, helping to protect livelihoods and recover faster from the adverse effects of climate change. Climate insurance can therefore play an important role in climate adaptation but at the same time, inappropriately set up insurance schemes can have unwanted consequences and may neither benefit the poor nor foster climate resilience (Surminski et al., 2016). This echoes IPCC (2012), a report on managing the risk of extreme events which concludes that insurance can be a tool for risk reduction and for recovering livelihoods, particularly in the face of extreme weather events. It also warns that insurance could provide disincentives for risk reduction, if not correctly structured.

Despite the increasing availability of affordable climate risk insurance options over the last two decades, a large insurance protection gap persists, especially for the most vulnerable and poor populations. Reasons for the persisting protection gap are complex and context-specific, but underdeveloped climate risk insurance markets, as well as affordability concerns among the poorest and most vulnerable, play an important role. Premium support can help address and overcome insurance market inefficiencies and affordability concerns, as well as reduce existing inequalities in protection through and improve access to climate risk insurance.

Summarizing discussions with the V20 and MCII, the InsuResilience Global Partnership (IGP) published a set of five SMART Premium and Capital Support Principles (Toepper and Stadtmueller, 2022). The SMART Premium and Capital Support Principles apply to all levels of premium support. With our new paper, we do not propose a different set of principles but highlight and discuss the considerations to operationalize premium support at the micro- and meso-level. The focus thereby lies on the implementation of climate risk insurance premium subsidies.

This working paper is structured as follows: After a reminder of what premium support encompasses, we explain the rationale for premium support for micro and meso-level climate risk insurance solutions. Afterward, different considerations for operationalizing such premium support are discussed in more detail. First, the roles and ownership of different actors, second, considerations for sustainable premium support, third, targeting or how to ensure that premium support reaches the most climate-vulnerable and lastly the case for, and good practices for transparent premium support. The paper concludes with a short section on the way forward.

  • Publish Date:
    December 11, 2023