Climate change is one of the most potent threats to life on earth and presents a serious risk to poverty reduction and the achievement of the Millennium Development Goals (MDGs).
 | Arun Kashyap, Public Private Partnerships Adviser, UNDP |
The Johannesburg Declaration on Sustainable Development clearly articulates that "the adverse effects of climate change are already evident, natural disasters are more frequent and more devastating and developing countries more vulnerable." While it is a global phenomenon, the adverse impacts of climate change are most severely felt by poor people and poor countries because of their high dependence on natural resource, lack of adequate safety net mechanisms and their limited capacity to cope with climate variability and extremes.
Poor people suffer not only from low incomes, but also from the lack of means to manage risk. Life and livelihoods security, which are missing in the informal economy, are critical to poverty alleviation. In the face of economic globalization, global threats and increasing natural disasters, creative thinking is required to provide demand-based and viable insurance products to the poor and to entrepreneurs in informal economies, thus increasing their adaptive capacities and reducing their vulnerability to shocks and stresses.
Since 2002, UNDP has been exploring, in cooperation with other institutions and experts including from the insurance industry to seek insurance related "adaptation" opportunities. A roundtable on "Climate Change Adaptation, Risk Management, and Insurance" held at the Eighth Conference of the Parties (COP8- October 2002) to the United Nations Framework Convention on Climate Change (UNFCCC), it was recommended to further explore the concept of micro-insurance as an instrument to reduce risk and vulnerability and strengthen in agreement with the insurance industry and other risk management institutions. A subsequent workshop on "Insurance and Climate Related Extreme Weather Events" at the ninth Conference of Parties (COP9- November 2003) that brought together Pacific, Caribbean and Indian Ocean participants along with insurance industry and other experts, concluded the need for greater effort for public private partnerships to validate in a participatory manner, diverse insurance approaches against country-driven demand.
UNDP is currently partnering with the German-based insurance company, Allianz and GTZ, the German international cooperation agency, to carry out market studies to analyse the demand for micro-insurance products in India, Indonesia and Lao PDR. It is hoped that the delivery of micro-insurance products will benefit poor and low income groups, reduce their vulnerabilities, establish local entrepreneurs and strengthen livelihoods. It is also hoped that access to micro-insurance will encourage private sector investments including in infrastructure, increase resilience in communities at the bottom of the pyramid and promote sustainable human development.
A consumer base of more than half of the world's population presents significant market potential for the insurance industry. Allianz, as one of the leading provider of insurance services will bring its global experience to determine viable insurance products and the cost of providing them.
The first phase of the Micro-insurance initiative -- demand and market analysis to appraise the most pressing safety net needs of poor populations in the three countries is nearing completion. The reports are being edited and analyzed. The next steps include the initiation of pilot activities by Allianz in selected countries. While UNDP and GTZ plan to meet the demand for capacity development resulting from the pilot activities, UNDP will engage its knowledge networks in 166 countries to build on the recommendations and encourage south-south transfer of capacity, enabling environment and outreach. It is anticipated that the initiative will lead to a sustainable business model that when linked with microfinance and remittances would empower local communities and enhance local capacity for meeting the MDGs.
