Cynthia Ezekwe
In advance of the upcoming COP28 climate change summit, the Insurance Development Forum (IDF), a partnership of insurers and international organisations supported by the World Bank and the United Nations, is planning to raise an infrastructure fund worth hundreds of millions of dollars to help developing countries cope with the effects of climate change.
The IDFÂ was launched at the Paris climate summit in 2015, and has since expanded to include a diverse range of stakeholders in the insurance sector, including insurers, reinsurers, brokers, regulators, and international organizations such as the World Bank.
One of the primary goals of the IDF is to increase the use of insurance and risk management tools to help people, businesses, and governments in developing countries build resilience to climate change and natural disasters. The IDF seeks to achieve this goal by promoting the use of risk-sharing instruments, such as micro-insurance and parametric insurance, and by working to improve the availability and affordability of risk insurance in developing countries.
It has been widely reported that the likelihood of the world limiting global temperature rise to 1.5 degrees Celsius, as agreed in the Paris climate accord, has become increasingly slim. Climate scientists have warned that exceeding this target would have serious and potentially irreversible consequences for the planet. Despite this, greenhouse gas emissions continue to rise, and many countries are struggling to meet their emissions reduction targets.
In June, the World Bank announced a new initiative to help its most vulnerable borrowers better manage the financial impacts of climate change. The initiative includes the embedding of repayment pauses and catastrophe insurance into new loans, which would allow countries to quickly access relief funds they would have otherwise used to make loan repayments.
Additionally, the Global Shield Solutions Platform, a multi-donor insurance fund, has started offering pre-arranged finance to countries that are particularly vulnerable to climate disasters. This finance can be accessed either before or soon after a disaster takes place, providing critical support to communities in need.
However, despite the various efforts being made to address climate change, there have been some notable setbacks in recent months. For example, some governments have scaled back their plans to transition to a low-carbon economy, and there has been political opposition to industry initiatives to collaborate on net zero policies.
It is against this backdrop that the IDF has set out plans to fund infrastructure projects that can help to mitigate the effects of climate change in developing economies.
In an interview with the Financial Times, Ekhosuehi Iyahen, the IDF’s secretary-general, said that the fund would prioritise countries that are already facing the most severe impacts of climate change.
“We’re not saying countries don’t need to work on transition,” Iyahen said, but “if you’re talking about people who are really feeling the brunt, it’s those people that are having to deal with the aftermath of storms that are much more vicious and destructive,” she added.
Michel Liès, chair of the IDF steering committee and Zurich Insurance Group, said that the upcoming climate summit would be an opportunity to communicate the importance of investing in preventative measures, rather than waiting for a catastrophe to occur.
“We want to make the point at COP that it’s better to spend $2 now to build resilient infrastructure than to have a $200 million bill to pay after the disaster,” LieÌ€s said.
LieÌ€s stressed the importance of “neutrality and objectivity” in the climate change debate, and said that the insurance industry could provide valuable insights through its expertise in risk assessment and modeling.
