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5 January 2007, Prof. Dr. Dr. Peter Höppe

Natural hazards: The increasing importance of insurance for the poorest of the poor

Weather-related natural catastrophes have a much greater impact on developing countries than on industrialised countries. Most of the people living in these countries are without insurance protection. The Munich Climate Insurance Initiative was launched by Munich Re with the aim of developing insurance solutions designed to contend with the increasing losses from extreme weather events.

Awareness is growing in the industrialised countries that climate change is not merely an immense environmental problem but also a challenge to national economies in that weather catastrophes cause billion-dollar losses.

Yet the impact on developing countries is immeasurably greater. Their national economies are less powerful and significantly more vulnerable, with the result that they are less able to cope with losses, if at all. Between 1985 and 1999, natural catastrophes caused losses equal to 13.4% of the gross domestic product (GDP) in developing countries, as compared with only 2.5% in industrialised countries.

Most of these countries are unable to meet the costs of weather damage – either by higher taxes or by new borrowings. The small Caribbean island states are already so heavily in debt, for example, that they can hardly take out further loans.

Development aid is increasingly used to subsidise repairs
Industrialised nations and their citizens display an immense willingness to donate money when regions are stricken by weather-related catastrophes, especially in developing countries. Donations and gifts help to pay for medication, medical assistance, emergency accommodation, or the reconstruction of hospitals, roads, and buildings.

According to World Bank information, it has paid out US$ 38bn to developing countries in the form of subsidies and loans for emergency aid in the last two decades. The Asian Development Bank has similarly reported large payments for such purposes.

But this also goes to show that a growing share of financial aid is not available for development projects in these countries but is channelled into reconstruction projects following natural catastrophes associated with climate change. This change, as researchers now firmly believe, is primarily attributable to the greenhouse gases emitted by industrialised and emerging countries.

Munich Climate Insurance Initiative (MCII)
Climate change is a threat to the livelihood and health of millions of people, particularly the poorest of the poor, who have had no access to insurance up to now.

It was with this in mind that Munich Re launched the Munich Climate Insurance Initiative (MCII) in 2005, whose mission is to develop insurance solutions that address the consequences of climate change. One of its focal areas is developing countries because it is in particular the poor people of this world that need to be given a chance of protecting themselves more effectively in future.

The basic idea underlying the initiative is to create a balance between the emitters of greenhouse gases and the developing countries hit by the effects of climate change. MCII shows that Munich Re is looking beyond traditional reinsurance business to launch new and innovative solutions in an ever-changing risk environment.

The initiative is the only one of its kind in the world. It brings global insurance players to the same table as UN organisations, non-governmental organisations (NGOs), and leading scientists.

Munich Re

Natural catastrophes are just as severe in industrial countries as in developing countries, as the distribution of major catastrophes between 1980 and 2005 shows.
Having less economic strength, however, developing countries have a harder time coping with the effects of catastrophes. A considerable portion of development aid is used nowadays to pay for the removal of damage.

Natural catastrophes have a major impact on the poorest of the poor, who often lose their entire livelihood as a result.
Insurance is a common way of making provision in industrial countries, but for many people in the world it has been inaccessible or unaffordable up to now. This is reflected in the low insurance penetration in developing and threshold countries.

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