Insurance as a response to Loss and Damage

Legal assistance paper

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Date produced: 15/11/2017

Can existing or new insurance products provide an adequate source of finance to cover anticipated additional climate related loss and damage?


This is obviously a very broad question but I think the Warsaw International Mechanism framework itself answers the question pretty clearly in that insurance is really only one part of dealing with loss and damage (the “risk transfer” part). There are various other approaches required to address loss and damage and it is worthwhile noting that the Mechanism contemplates non-economic loss and damage as well (which may not generally be “insurable”).

In terms of insurance products and the extent of availability this is probably too broad a question without contemplating specific contexts but I think it’s fair to say two things. Firstly, insurance for all manner of “extreme events” (e.g. hurricanes etc) are available on the market already and new insurance products/markets are quick to develop as soon as a quantifiable risk arises (cyber-insurance is an example of a fairly recent development in the insurance market). So as climate change-related impacts become more identifiable/assessable it’s quite possible markets for associated insurance will develop. Of course, as and when things become inevitable that market becomes more expensive and dries up so it will always be difficult to manage.

The second point is related to the above but more practical in that insurance is usually issued on a relatively short-term basis and is not usually applied on the sort of long-term horizons associated with climate change. As a result, (even leaving aside things like non-economic loss) it can’t be relied on as the sole response to “slow onset” events associated with climate change (as referred to in the mechanism) as those events might be too gradual in order for any insurer to generate (affordable) products.

As a general matter it might also be the case that even assuming insurance was available for each and every risk that is associated with climate change, it might not be the best economic solution to dealing with the possible loss and damage.