Innovative climate risk insurance – the InsuResilience Solutions Fund
People in developing countries and emerging economies are especially adversely affected by the impacts of climate change. In the event of droughts or floods, their livelihoods can be at risk – for instance, due to crop failure. Insurance provides effective protection against extreme weather events. However, less than one per cent of the population currently has access to this type of policy. For a long time, KfW has been involved in developing and setting up innovative insurance products and funds to support this type of insurance. One of these funds is the InsuResilience Solutions Fund (ISF).
The ISF promotes the development of needs-based climate risk insurance products in developing countries and emerging economies to improve their ability to adapt to climate change. The fund is one of the key implementation programmes from the InsuResilience Global Partnership, an international initiative set up in 2017 by the German Federal Government and its partners from the G20 and V20. The aim of the partnership is to reduce the negative effects of climate-based natural disasters and to strengthen the resilience of poor and vulnerable members of the population. It was set up by KfW on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ). Since 2019, the Frankfurt School of Finance & Management has been tasked with implementing the programme, which is financed using BMZ funds via KfW Development Bank.
The InsuResilience Solutions Fund provides extensive climate risk analyses, which supply governments, businesses and civil society with important data and information for developing needs-based climate adaptation strategies and establishing proactive climate risk management. Two climate risk analyses are currently being carried out in Ethiopia and Honduras using the Economics of Climate Adaptation (ECA) methodology.
As part of another component, studies and advisory services are financed to develop new concepts for climate risk insurance products, taking into account the specific needs of poor and vulnerable population groups. For instance, 2019 saw support provided for feasibility studies in Columbia, the Mesoamerican Reef region, Peru, Sri Lanka and South Africa.
In order to promote the implementation of new concepts and strategies for climate risk insurance policies in specific insurance products, the InsuResilience Solutions Fund also co-finances the development costs for innovative climate insurance products and their market launch. In 2019, the InsuResilience Solutions Fund managed to issue three calls for proposals, which were met with a great deal of interest. More than 60 applications have been submitted to date as part of the competitive process.
For 2020, the ISF’s management team and KfW are aiming to mobilise additional capital from the private sector as part of its co-financing of market launch and development costs, as well as seeking to support new partnerships and attract new donors to the ISF. The goal is to extend the range of promotional opportunities for innovative approaches to climate risk insurance and, in turn, increase the level of protection for the people affected most by climate-related and other natural disasters.