1. MICRO INSURANCE TO
ADDRESS CLIMATE
CHANGE RISKS AND
GLOBAL REVIEW OF
INSURANCE
INDUSTRY
RESPONSES
“CLIMATE LITERACY FOR BANKING SECTOR”
From 11.02.2013-13.02.2013
MCR-HRD IAP, HYDERABAD
Dr. N. Sai Bhaskar Reddy
12st February2013 saibhaskarnakka@gmail.com

2. Insurance
 Insurance is the equitable transfer of the risk
of a loss, from one entity to another in
exchange for payment.
 Individual entities can also self-insurethrough
saving money for possible future losses

3. Floods

4. Fires

5. Hurricanes

6. Drought

7. Disease

8. While you‟re reading this, the ice is
melting.
 The effects of climate
change are being felt
today
 Real losses are being
incurred
 The threat of future
losses can no longer
be ignored

9. Who pays for it?

10. Imaginable Surprise
 Some events are not truly unexpected.
 It is possible to imagine the conditions
necessary to produce extreme “surprises.”
 Integrated assessment models are less
reliable with increased probability and number
of surprises.

11. Vulnerability
Vulnerability to climate change is the risk of
adverse things happening
Vulnerability is a function of three factors:
Exposure
Sensitivity
Adaptive capacity

12. Adaptation
“adjustment in natural or human systems in
response to actual or expected climatic stimuli
or their effects, which moderates harm of
exploits beneficial opportunities”
(Third Assessment Report, Working Group II)
Includes “actual” (realized) or “expected” (future)
changes in climate

13. Adaptation (continued)
Two types of adaptation
Autonomous adaptation or reactive adaptation tends to be
what people and systems do as impacts of climate change
become apparent
Anticipatory or proactive adaptation are measures taken to
reduce potential risks of future climate change

14. Climate Changes in
India
 Increase in surface
temperature by 0.4
degree C over the
past century.
 Warming trend
along the west
coast, in central
India, the interior
peninsula, and
northeastern India.

15. Climate Changes in India
 Cooling trend in northwest
India and parts of South India.
 Regional monsoon variations:
increased monsoon seasonal
rainfall along the west coast,
northern Andhra Pradesh and
North-western India,
decreased monsoon
seasonal rainfall over eastern
Madhya Pradesh, North-
eastern India, and parts of
Gujrat and Kerala.

16. Climate Changes in India
 Observed trends of multi-
decadal periods of more
frequent droughts, followed
by less severe droughts.
 Studies have shown a rising
trend in the frequency of
heavy rain events and
decrease in frequency of
moderate events over
central India from 1951 to
2000.
16

17. Climate Changes in
India
 Records of coastal tide
gauges in the north
Indian ocean for the
last 40 years has
revealed an estimated
sea level rise between
1.06-1.75 mm per year.
 The available
monitoring data on
Himalayan glaciers
indicates recession of 17

18. Per-capita Carbon –dioxide emission (Metric
Tons)
25
20.01
20
15
11.71
9.4 9.87
10
5 3.6 4.25
1.02
0
USA Europe Japan China Russia India World
average

19. What questions do we now need to consider?
 Do you know what impact climate change could have on your area?
 Do your current policies, strategies and plans include provision for
the impacts of climate change?
 Can you identify and assess the risks from climate change to your
services?
 Are developments with a lifetime of more than 20 years required to
factor in climate change?
 Are you addressing climate change in your local Community
Strategy?

20. July 2005 – Mumbai Flood
On 26th July 2005 the meteorological station at Santacruz in
North Mumbai (India) recorded 944 mm of rainfall within 24
hours, the highest ever in the history of precipitation
recordings in India.

21. Tropical Cyclone Nargis, May
3, 2008
Wind velocities up to 215 km/h
(Cat 4)
Floods in the Irrawaddy
delta, also Yangoon affected
Human catastrophe
Estimated number of fatalities
about 100,000
Source: http://www.reliefweb.int
© 2008 Münchener Rückversicherungs-Gesellschaft, GeoRisikoForschung, NatCatSERVICE

22. Victoria Wildfires, Australia (Black Saturday Fires) February 2009
Wildfires, February 2009
Overall losses: US$ 1,300m*
Insured losses: US$ 650m*
Fatalities: 173 *Losses in original values
Source: Reuters, Berlin
© 2009 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE. As at June 2009

23. Heat wave of 2003, with more than 70,000 fatalities the
largest humanitarian natural catastrophe in Europe for
centuries
Perceived Temperature
on 8 August 2003 and
excess mortality
Heat stress
extreme
300 high
2.300 moderate
9.400 light
comfortable
light
moderate
19.500 high
extreme
1.000
800
20.100 Cold stress
2.700 15.000
Sources: Robine et al., 2007;
German Weather Service, 2004

24. August 2005 – Hurricane Katrina
6th strongest hurricane, largest losses of a single event
source: AP
25.-30.8 Hurricane Katrina, USA (1.322 fatalities)
Economic losses (US$ m): 125.000
Insured losses (US$ m): 61.000 (NFIP included)

25. Munich Re NatCatSERVICE – One of the world„s
most comprehensive databases on natural
catastrophes
 From 1980 until today all loss events
 For USA and selected countries in Europe all loss events since 1970
 Retrospectively all Great Natural Catastrophes since 1950
 In addition all major historical events starting from 79 AD – eruption of Mt.Vesuvio (3,000
historical data sets)
 Currently more than 26,000 events documented
Natural catastrophes 2008
Earthquake, tsunami,
volcanic eruption
Storm
Flood
Extreme temperature
(heat wave, forest fires)
Great natural catastrophes:
Earthquake China
Hurricane Ike
Cyclone Nargis
Winter damage China
© 2009 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE. As at June 2009

26. Natural catastrophes in Asia
Great natural catastrophes in Asia 1950 – 2008
Geophysical events Hydrological events
(earthquake, tsunami, volcanic activity) (flood, mass movement)
Meteorological events Climatological events
(storm) (extreme temperature, drought, wildfire)
© 2009 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE – As at September 2009

27. Natural catastrophes 2008
Weather catastrophes in Asia 1980 –
2008
400
Number of events
350
300
250
200
150
100
50
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Meteorological events Hydrological events Climatological events
(Storm) (Flood, mass movement) (Extreme temperature,
drought, forest fire)
© 2009 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE – As at September 2009

28. Global natural disasters 1980 – 2008
Geophysical, meteorological, hydrological
events
500
450
400
350
300
Number
250
200
150
100
50
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Geophysical events Meteorological events Hydrological events
(Earthquake, tsunami, (Storm) (Flood, mass movement) ----- Trend line
volcanic eruption)
© 2009 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE

29. Climate change probably has a significant impact on increases
of nat cat losses, especially in North America and
Asia/Australia.
Annual growth rates of nat cat losses and climate component
Global North Europe Asia/
America Australia
1980 Nat cat loss trend (% p.a.) 11 11 8 15
–
2007 Climate component (% p.a.) 4 5 1 6
Comments
 These data are indicative only – a more precise determination of the regional loss drivers
related to climate change is needed (e.g. via LSE cooperation)
 Nat cat loss trend: growth rates of original/nominal values and not adjusted for inflation
 Climate component: actually “Climate plus X” because influencing factors include
anthropogenic climate change, natural climate variability, changes in vulnerability and
changes in population distribution

30. Climate Change and Extreme Weather Events
(IPCC, 2007)
very likely > 90% likely >66% more likely than not > 50%

31. Trends of heavy precipitation events during
summer monsoon in India
Source: Goswami, B. N. et al. (2006), Science 314

32. Integrating the Uncertainty and Surprises of Climate
Change
 Intergovernmental Panel on Climate Change (IPCC)
established in 1988.
 Assesses the scientific, technical and socio-economic
information relevant to understanding the risk of human-
induced climate change, its potential impacts, and
options for adaptation and mitigation.

33. What‟s the Policy on Climate
Change?
 Earth Summit (1992)
 Kyoto Protocol (2001)
 World Summit on Sustainable Development
(2002)

34. The Insurance Industry
Insurance Group
Agency Company Agents

35. The Insurance Industry
Reinsurer
Insurance Investment
Insurance Group
Companies Companies

36. What is risk management?
 A central part of our strategic management.
 It is a continuous cyclical process whereby the council:
identifies,
assesses/evaluates,
controls: and
monitors
potential opportunities and adverse effects that challenge
the assets, reputation and objectives of the Council.
 It enables the Council to effectively manage strategic
decision making, service planning and delivery to
safeguard the well being of its stakeholders

37. What is Risk Management?
Risk
Management
Cycle
Assess

38. Risk and Opportunity Rainbow
Political

39. Environmental Risks
Drought

40.  Drawing on accumulated savings of liquid assets (e.g.
cash, bank account balances etc.).
 Selling other assets (e.g. jewelry, land, livestock etc.).
 Borrowing from moneylenders, microfinance institutions
(MFIs), banks or other financial institutions.
 Informal risk-sharing arrangements with
neighbors, friends, family etc. (For example, if the
household suffers an adverse shock, there may be an
increase in remittance income sent by family members
living abroad, or financial assistance provided by other
households living in the same village, at least to the
extent that those households are not also affected by the
same shock).
 Government assistance (e.g. government work
programs, drought assistance programs etc.).
 Formal insurance arrangements

41. Climate Change Risks and Opportunities
Finance: Implications for investments, insurance & stakeholder reputation
Risks:
 Failure to climate proof creates difficulties in securing investment and/or insurance
cover
 Potential liabilities if climate change is not factored into long term decisions about the
future
Possible impacts:
 Insurance Policies: Check Insurers stance on undefended flood risks and impact on
premiums
 Future Developments: improved specification that takes account of future climate is
likely to be cost effective in most cases
Opportunities/Controls/Mitigation
 Evidence of climate proofing enhances reputation with all stakeholders, provides
security for investments and an opportunity to reduced insurance premiums

42. What types of claims are we now seeing?
Long term dry conditions:
 Drought affects trees- roots cause subsidence to properties
and can create heave in pavements creating slips trips and
falls
Wet conditions:
 Flooding
 Drainage issues
Increase in wind speeds:
 Structural damage to buildings
Extreme cold conditions:
 Frozen pipes - escape of water

43. Understanding
 Natural catastrophes, especially weather related events, are increasing in
number and magnitude especially in Asia.
 Global warming is real.
 There is more and more scientific evidence for causal links between climate
change and increasing frequencies and intensities of natural catastrophes.
 We have to mitigate global warming and adapt to the changing risks in respect to
the regionally specific risk patterns.
 In Copenhagen ambitious CO2-reduction targets should be fixed to avoid
dangerous, unmanageable climate change.
 The Copenhagen outcome should provide adaptation funds for developing and
emerging countries, including new insurance solutions.
 The insurance industry supports climate change mitigation and adaptation
measures by sharing its knowledge with the public and providing custom made
covers for innovative technologies.

44.  To date, there is little understanding of or agreement
within the climate change community on the role that
insurance-related mechanisms can play in
assisting developing countries adapt to climate
change.

45. India is considered to be the second most disaster-
prone country in the world.
 With a large and growing population, densely
populated and low-lying coastline and an economy
that is closely tied to its natural resource
base, India is highly vulnerable to climate change.
 Disaster insurance cover, however, is low
compared to international standards and plays only a
complementary role. Disaster risk
management, including financing relief and
reconstruction, is primarily the responsibility of
governments, which provide actual assistance, or
communities through informal risk sharing.

46.  Frequently governments and communities do not
have sufficient resources, and households lacking
insurance typically turn to moneylenders, selling
assets, reducing inputs in farming, or
diversifying their activities. Another strategy is to
send family members to work elsewhere and remit
payments.
 However, such traditional risk management
strategies, while reducing vulnerability in the short
term, can increase vulnerability over the longer term
by promoting sub-optimal asset allocation. For
instance, small farmers may opt for multiple cropping
to reduce income variability rather than planting the
most profitable crops. Traditional risk sharing
strategies also break down in case of disasters

47.  Low insurance penetration in India can be traced to
a number of demand and supply side factors. On the
demand side, the foremost difficulty is the
unaffordability of insurance for low-income high-
risk regions. Other hurdles include public myopia
and low awareness among the public about
insurance and risk management.

48.  The experience of major insurance companies
shows that following a major catastrophe there is
a rush for insurance cover, particularly for life and
assets. But this interest is short lived, and in a
majority of cases these policies are not renewed.
Finally, large sections of the Indian economy operate
outside the formal economy – not just small
businesses, but also housing.

49.  On the supply side, easy access to insurance
products is still an issue. The problem of scaling up
small-scale schemes to encompass large rural areas
is the biggest hurdle in enhancing overall penetration
rates. The poor in many rural areas have higher
disaster risk exposure and also suffer more vis-à-
vis their urban counterparts (World Bank, 2003).
More specifically, their vulnerability to climate-
change risks is increased on two counts: their
inability and/or unwillingness to involve in high-
risk activities (for instance growing cash crops)
that promise higher returns, and their inability to
reside in disaster safe locations.

50.  The entry of the private sector has metamorphosed
insurance in India by greatly improving penetration
levels. Companies have innovated with their product
offerings and marketing strategies. For
example, index-based weather risk micro-insurance
programs have been pioneered in India as an
alternative to traditional crop insurance.
 These instruments are linked to the underlying
weather risk defined as an index (based on historical
data, e.g. for rainfall, temperature, snow, etc) rather
than the extent of loss (e.g. crop yield loss). It is
estimated that currently about 150,000 farmers have
purchased such cover in India. More capital will also
encourage a greater involvement of global
partners, and thereby, enhance product
innovation, service quality and technology standards.

51. Communities at risk, governments, international
organizations, industry, and NGOs worldwide are
seeking solutions for preventing and adapting to the
rapidly multiplying impacts of climate change and
weather-related disasters.
Article 4.8 of the United Nations Framework
Convention on Climate Change (UNFCCC) and the
supporting Article 3.14 of the Kyoto Protocol call
upon developed countries to consider
actions, including insurance, to meet the specific
needs and concerns of developing countries in
adapting to climate change.

52. The Munich Climate Insurance Initiative (MCII) was
formed in 2005 by NGOs insurers and
reinsurers, climate-change experts and policy
researchers to provide a forum for examining insurance-
related options that assist with adaptation to the risks
posed by climate change. The full MCII report on
Insurance Related Options for Adaptation to Climate
Change will be posted on the following websites after
COP 11:
www.slf.ch/drf and www.iiasa.ac.at/Research/RMS.
This summary outlines concrete options for climate
negotiators to support insurance mechanisms for
climate-related disasters in disaster-prone developing
countries. It discusses the scientific and economic
rationale of a climate “insurance” system, options for
such schemes, funding opportunities, associated

53. Climate disasters include such events as heat
waves, droughts, bush fires, tropical and extra
tropical cyclones, tornadoes, hailstorms, floods
and storm surges. The losses from natural
disasters are increasing, a trend that is attributed
mainly to the increasing concentration of people and
economic values in urban areas and the migration of
populations and industries into areas, such as
coastal regions, that are particularly exposed to
natural hazards.
Considering weather-related disasters, a large
proportion of the increase in economic losses from
1980 to 2004 has occurred in high-income countries
that have experienced large increases in capital
(lower middle-income countries have also

54.  Highly exposed developing countries rely extensively on
external concessional borrowings from international
development banks (such as World Bank, IDB and the
IMF) and international donor aid to deal with the
devastating consequences of natural disasters.
 A concern to donors and multi-lateral financial
institutions, among others, is the increasing share of
aid spent on emergency relief and
reconstruction, which crowds out spending for
social, health and infrastructure investments. The
World Bank estimates that it has provided grants and
loans for disaster relief and recovery of more than US$
38 billion to developing countries over the last two
decades (Gurenko, 2004; Gilbert and
Kreimer, 1999), and the Asian Development Bank also
reports large loans for this purpose (Arriens and
Benson,1999). This means that disasters will continue to
profoundly impact the lives, health, and property of
millions of people, and will be acutely felt among the
world‟s poorest people. To date, these vulnerable groups

55.  Weather shocks often affect all households in a local
geographic area, making some forms of risk-
coping, such as seeking help from nearby
family, friends and neighbors, relatively less
effective. Globally, household exposure to extreme
weather events is likely to increase over future
decades, due to climate change as well as
population growth in risk-sensitive areas

56. The Indian rainfall index insurance
market. “Index insurance” refers to
Efforts have been made in India
a contract whose payouts are
and other countries in recent years
linked to a publicly observable
to develop formal insurance
index; in this case, the index is
markets to improve diversification
cumulative rainfall recorded on a
of weather-related income shocks.
local rain gauge during different
phases of the monsoon season.
This form of insurance is now
available at a retail level in many
parts of India, although these
markets are still in their relative
infancy in terms of product design
and distribution.

57. Lloyd‟s (2009) estimates that around 135 million low
income individuals around the world already make use
of micro-insurance in some form, and estimates a
potential final market size of 1.5bn to 3bn households.

58. Growth in these markets
reflects a broadening of
efforts towards greater
financial access for the poor
to include insurance and
savings products in addition
to micro-credit.