Climate risk insurance in Pacifc Small Island Developing States: possibilities, challenges and vulnerabilities—a comprehensive review

Abstract

For the Pacifc Small Island Developing States (PSIDS), climate change will greatly exacerbate their vulnerability. The PSIDS have a high ranking in the Climate Risk Index and the World Risk Index. Financial losses due to climate-induced disasters, in terms of gross domestic product (GDP), are also high in the Pacifc region. While climate risk insurance solutions could play a key role in the efcient distribution of recovery resources, there are many challenges to their successful implementation. Efective climate risk insurance products for the vulnerable sections of these societies are almost non-existent in this part of the world. Among the worst climate-induced disasters to afect the PSIDS are those related to cyclones and foods. These not only adversely impact the welfare of the households afected by these disasters, but they lower the long-term development potential of the countries involved. There is also evidence to suggest that climate-induced disasters are increasing in frequency and intensity over time due to climate change. It is against this background that an inquiry into the necessity for climate risk insurance products in the context of PSIDS should take place. This paper gives a comprehensive review of the literature addressing climate risk insurance as a risk mitigation or climate adaptation tool for managing the climate-induced fnancial vulnerabilities in the PSIDS. The paper explores the afordability of climate risk insurance, particularly among the vulnerable sections of society, and discusses the challenges of implementing an appropriate climate risk insurance model in the region. Finally, it examines recent climate risk insurance initiatives that have been attempted by multilateral agencies, such as the United Nations Development Programme (UNDP), the United Nations’ Pacifc Financial Inclusion Practice (UNCDF), Pacifc Insurance and Climate Adaptation Programme (PICAP), and respective local governments. Show more