Climate insurance: what kind of deal can be made in Copenhagen

Climate chaos0

Climate insurance: what kind of deal can be made in Copenhagen?

One key challenge on the climate change agenda is a fairer system to protect the world’s poorest farmers from failing crops and extreme weather variations. From Climate Feedback part of Guardian Environment Network

Katine drought ethiopia

The results of crop failure from exceptional drought in Ethiopia. Photograph: Joel Robine/AFP

As even the staunchest advocates will tell you, climate insurance is by no means a magic bullet. But clearly the tools of modern finance could certainly help make poor nations prepare for and respond to all manner of natural disasters big and small.

We explore some of these ideas in this week’s issue of Nature, taking a quick look at how the insurance debate is playing out in the ongoing United Nations climate talks. The upshot is that some kind of insurance mechanism is likely to make it into whatever climate deal is struck in Copenhagen and beyond.

One commonly cited option is index insurance, which is tied to things like rainfall that can be measured objectively. This cuts down on costs by eliminating the need for audits and investigations. In the case of something like crop insurance, moreover, it could put money in the hands of farmers immediately after the rains fail – and before the hunger sets in.


Today these programmes are being paid for largely by the farmers and nations buying the insurance, but industrialised nations would likely subsidise any insurance programme deployed as part of an international climate agreement. The logic is that extreme weather variations – including droughts and heavy storms – are likely to increase in a warmer world, which means that both costs and premiums will rise as well.

A key challenge moving forward is how to scale up programmes that benefit the world’s poorest farmers and communities. Dan Osgood, a researcher at Columbia University’s International Research Institute for Climate and Society, points out the pilot programmes that are under way today have generally been deployed in areas where information – regarding weather, crops and the like – is available. This means it will only get more difficult moving forward.

In the case of the Ethiopian project discussed in our story, Osgood only had 15 years of satellite data on rainfall. The team has installed a rain gauge in the village of Adi Ha, which they hope to use in future years, but the team had no choice but to base their rainfall metrics on satellite data this year.

Osgood says the insurance question could also increase pressure on scientists and insurance companies to tease out the long-term impacts of global warming at very local scales. He was forced to grapple with the problem when he analysed the satellite data and found a slight decline in precipitation around Adi Ha. Scientists can perhaps write that kind of trend off as an uncertainty and wait for more data. Insurance contracts, however, can’t ignore such trends, because they are, by their very nature, priced according to uncertainty. The bigger the risk, the more uncertainty, the higher the price.

“It could be a climate trend, it could be just noise and uncertainty, or it could be a decadal process,” he says. “What’s cool about it is we don’t need to know in order to write the contract this year.”
Jeff Tollefson

• This article was shared by our content partner, Nature’s Climate Feedback blog, part of Guardian Environment Network


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