CLIMATE CHANGE: Creative financing is needed to help developing countries adapt to climate change, writes Frank McDonald, in Nairobi
The escalating cost of natural disasters could hit $1,000 billion (€780 billion) a year sooner rather than later, with most insurance companies no longer in any doubt that this is linked to global warming.
Losses from "extreme weather events" caused by climate change are doubling every 12 years, according to insurance industry experts involved in a finance initiative set up some years ago by the United Nations Environment Programme.
At a press conference in Nairobi yesterday during the final week of the UN Climate Change Conference, they said new kinds of insurance and financing are urgently needed to help developing countries adapt to current and future climate change.
Until now, widespread insurance cover has been generally confined to developed countries where householders and businesses can afford to pay the annual premiums - although in some disaster-prone areas these are becoming prohibitive.
According to the experts, the costs of coping with a rising tide of natural disasters could outstrip current levels of international aid unless creative financing is adapted for the developing countries likely to be hardest hit.
One scenario modelled by Andlug Consulting projected that, within the next three to four decades and possibly much sooner, the world could witness a year in which losses from droughts, storms, hurricanes and floods hit $1,000 billion (€778bn).
Latest figures from MunichRe, which tracks losses from natural disasters, show that the costliest weather-related disaster so far this year was typhoon Kaemi, which struck China in July.Overall losses for it are estimated at $9 billion (€7bn).
Typhoon Shanshan, which hit Japan in September, racked up losses of $2.5 billion, followed by the tornadoes that struck the US in March ($1.5 billion) and typhoon Saomai, which hit China and the Philippines in August ($1.4 billion).
In Africa, the ongoing drought and floods in Ethiopia and Somalia have been among the worst weather-related disasters, leaving some 280,000 people homeless. Drought in Kenya, which began late last year, has affected an estimated three million people.
But a report by United Nations Environment Programme's climate change working group, Adaptation and Vulnerability to Climate Change: the Role of the Finance Sector, said promising initiatives are under way to bring cover to farmers in the Horn of Africa.
Piloted in Ethiopia by the UN's World Food Programme, this "weather derivative" scheme gave farmers cover during the March-October agricultural season and was designed to pay out small sums of money if rainfall fell below a certain threshold.
The pilot programme, involving Axa insurance, the World Bank and the US government, offered community-wide cover of $150,000 for a premium of $1,600 and was aimed at preventing a descent into chronic poverty and aid dependency.
United Nations Environment Programme executive director Achim Steiner said adaptation to climate change was already "touching on every facet of economic and development life" and needed new ideas from the finance, insurance and re-insurance industries to manage developing risks.
These ideas were now beginning to emerge, and offered the UN and donor countries "fresh and potentially lower cost avenues by which they can nip a climate-linked crisis in the bud before it develops into a full-scale and much more costly disaster".
Thomas Loster, of the MunichRe Foundation, said most insurance and reinsurance companies "have no doubt that the rising tide of losses from weather-related disasters is linked with climate change. The possibility of a 'one trillion dollar loss year' is one scenario out of many, but whatever the precise figures the losses are already large and set to increase".