MCII: Climate Risk Adaptation and Insurance in the Caribbean

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    Sobiah BECKER

    Developing countries located in disaster-prone regions such as the Caribbean are particularly hard hit by the consequences of global climate change. As extreme weather events increase not just in frequency but also in intensity, vulnerable populations are made even more vulnerable by the increased risk changing weather conditions place on their lives and livelihood. The Climate Risk Adaptation and Insurance in the Caribbean project addresses climate change, adaptation and vulnerability by promoting climate risk insurance as an instrument to manage, and transfer risk. Funded by the Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB) under its International Climate Initiative, the project is being implemented by the Munich Climate Insurance Initiative (MCII), hosted at UNU-EHS , and its partners: the Caribbean Catastrophe Risk Insurance Facility, DHI, MicroEnsure, with reinsurance capacity provided by Munich Re. The project currently operates in three countries (Jamaica, Saint Lucia and Grenada) and has successfully designed and launched two index-based insurance products: The Livelihood Protection Policy (LPP) serves people in the low-income segment that are particularly vulnerable to extreme weather events. It covers damages from heavy rain and strong winds to avoid that people have to adopt coping strategies that could lead them deeper into poverty. LPP payouts are quickly deposited to policy holders after an event hits to ensure that affected households can rebuild their lives soon after the impact. A training and education module for both, local stakeholders (incl. primary insurers and distribution channels) and affected communities aims to improve their understanding of the insurance tool and helps improve insurance and financial literacy. The Loan Portfolio Cover (LPC) is targeted at financial institutions and aims to help them better manage their loan portfolio risk in case of a damaging weather event. By transferring the risk of a financial institution’s weather-related loan default means the financial position of these institutions continues to be stable after an extreme event, enabling them to avoid curbing their lending activity or instituting unfavourable terms of credit. The LPC can help overcome the reluctance to invest, improve access to lending and contribute to reducing the cost of providing financial services. The project is currently pending funding for a second phase of activities to continue to deepen the already started efforts in its target countries and further the financial inclusion of vulnerable and previously underserved people in the region.