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Unpacking Disaster Risk Finance And Insurance

Civil Society Network on Climate Change (Cisonecc) a non – state actor climate resilience building think – tank is leaving no stone unturned in as far as disaster risk financing and insurance is concerned. The initiative aims to reduce the negative consequences of disasters and climate change on development opportunities and living conditions of vulnerable Malawians through establishment and strengthening of a multi-actor dialogue platform at national level. This will promote gender-equitable, poverty-oriented and human rights – based approaches to climate risk financing. Our correspondent CHARLES MKOKA caught up with JULIUS NGOMA, CISONECC National Coordinator to share insights on disaster risk financing and insurance.

Can you explain to our audience what is climate disaster risk financing and insurance (CDRFI) and how has it come about?

Climate and Disaster Risk Financing and Insurance (CDRFI) covers initiatives and mechanisms that fall under the risk financing strategy for Disaster Risk Management (DRM). In essence, CDRFI covers Risk Transfer and Risk Retention mechanisms under the DRM strategy. CDRFI is an innovative strategy of addressing poverty and other social and economic challenges induced or exacerbated by climate change and natural disasters. CDRFI solutions when used as part of the comprehensive disaster risk management approach, can enable more resilient economic development and help protect lives, livelihoods, businesses, infrastructure, and public finances by strengthening disaster preparedness, rapid response and recovery. CDRFI has come about due to financial losses caused by natural and climate related disasters that continue to rise among developing countries resulting in negative social economic impacts on human populations and the ecosystem at large. Natural and climate related disasters generate significant fiscal risk and create major budgets that are often unplanned for and this create shocks and despair. Even countries with robust disaster risk management programs can still be highly exposed to economic and fiscal shocks caused by major disasters especially those that are natural and climate in nature.

So, in a nut shell, CDRFI schemes cover—against a premium—the costs incurred by the insured entity from extreme weather and natural disasters such as drought, floods, pest and diseases among others. In the case of in eventualities, the insurer refunds a percentage of the costs incurred. Such schemes therefore are widely used to increase the resilience of individuals, companies and public entities to external shocks and reduce their future expenditures in case of a disaster.

Are there policies, processes and activities at global, regional and local level that support CDRFI which sounds a totally new phenomenal in Malawi?

Policies and institutions supporting the development of CDRFI initiatives exist at global, regional and national levels. At the global level, CDRFI is anchored in the United Nations Framework Convention on Climate Change (UNFCCC) and its implementation tool, the Kyoto Protocol, the Paris Agreement, the 2030 Agenda for Sustainable Development, the Addis Ababa Action Agenda of the third International Conference on Financing for Development and the Sendai Framework for Disaster Risk Reduction. All these policies call for coordinated effort towards rethinking future adaptation and risk finance, in order to determine climate and disaster related risks and explore reduction measures.

At regional level, framework policies include the Africa Regional Strategy for Disaster Risk Reduction, African Union Strategy on Climate Change and the Southern African Development Community (SADC) policies (protocols) on climate change (mitigation and adaptation). SADC also has the Regional Water Policy and a number of protocols not directly tackling CDRFI but relevant to disaster risk management such as the protocol on politics, defence and security; and the protocol on health. Nationally, CDRFI is provided for in the constitution and is anchored in the Malawi Growth and Development Strategy III and in most key policies within agriculture, environment and natural resources management, climate change and disaster risk management sectors. A number of sector specific regulations also exist that guide the establishment and management of CDRFI related funds and risk transfer solutions.

Do you think CDRFI will work effectively as a step towards addressing climate related challenges in Malawi? I am asking this question because penetration of insurance products is regarded as one of the lowest in Africa, estimated at two percent in 2014, down from three percent in 2008 according to Ministry of Finance, Economic Planning and Development findings 2017?

CDRFI will help to bridge the existing gap in terms of financing risks, especially residual risk in Malawi by offering insurance products to poor farming communities who always bear the blunt of climate related risks turning hazards into disasters. There has always been a gap in terms of supporting the poor citizens to manage the risks and transfer such to a third party such as insurance companies which can help them to manage disaster risks. Risk transfer mechanisms, once they are nurtured and managed properly, they can help the country to reduce climate related risks and disasters. CDRFI is also key in managing losses and damages associated with climate related disasters. Although Malawi’s focus has largely been response to disasters, managing residue risks has always been a challenge. Transferring such risks to a third party will assist to strengthen Malawi’s preparedness and result in implementation of effective response mechanisms in the country.

Natural and climate related disasters generate significant fiscal risk and create major budgets that are often unplanned for and this create shocks and despair. Even countries with robust disaster risk management programs can still be highly exposed to economic and fiscal shocks caused by major disasters especially those that are natural and climate in nature.

Index – based weather insurance is not a magic bullet. What has been planned on paper as part of awareness raising among pro – poor farmers in managing the larger spectrum of risks farmers face within the “Multi-stakeholder partnership on climate and disaster risk financing and preparedness in the context of the InsuResilience Global Partnership” program which you are implementing?

The country learnt lessons from the implementation of the drought insurance policy under the Africa Risk Capacity in 2016. Experiences from implementation of CDRFI initiatives by institutions such as NICO General Insurance, World Food Programme, and National Association of Smallholder Farmers of Malawi (NASFAM) have also contributed to lessons and desire for further stakeholder engagements in CDRFI. The lessons meant that as a country we need to put our house in order in terms of ensuring that we improve our system of capturing weather, climate information and modeling so that the weather index – based insurance can help us better manage the risks and provide sound and timely compensations to various communities which purchased index-based weather insurance.

We are yet to learn from other countries such as Kenya, Senegal, Zimbabwe on the successes of CDRFI especially related to farming communities as it is still a new concept. There are pilots of the mechanisms in these countries some of which have successful results. For instance, Senegal participation in ARC initiatives yielded great results in terms of support to farmers during disasters.

CISONECC through the InsuResilience MAPs project has developed an engagement and awareness strategy to reach out to different stakeholders including the farmers on the availability and accessibility of climate and weather-related financing and insurance initiatives and products available globally, regionally and nationally. We are operationalizing the Multi – Actor Partnership Forum, which will help us to roll – out the awareness strategy so that we can reach the most vulnerable populations in the remotest areas with the CDRFI related messages including weather insurance products in Malawi and even beyond.

Pro-active management of climate risks requires long – term commitment from public champions like relevant ministries and associated climate and disaster risk management initiatives. This includes a sustained public engagement with relevant stakeholders like the private sector and civil society at large on building resilience and reducing exposure. Has this been done what has been the response from such key players?

There has been limited engagement over the past years on CDRFI issues as there was lack of proper champion on these issues. Elaborate engagements on CDRFI started immediately in 2016 when there were issues with Malawi’s drought insurance policy under Africa Risk Capacity. CISONECC and partners, Care International and Action Aid took this as an opportunity to start deeper and meaningful engagements on CDRFI issues with the aim of raising awareness and supporting Government to develop sound pro-poor policies to support CDRFI initiatives in Malawi. The Insuresilience MAPs project being championed by CISONECC and Care International is a result of the initial engagements on Malawi’s Drought Insurance Policy and is aimed at ensuring that the country has a team of champions, both individuals and institutions to spearhead CDRFI initiatives and advocacy in order to sustain the awareness and build stronger institutions that can support effective implementation of CDRFI in Malawi for the benefit of poor farming families.

CISONECC through the Insuresilience Programme is operationalizing the Multi Actor Partnership (MAPs) forum which will assist to take forward the CDRFI issues at different levels including at policy level. The MAPs will be a forum comprising key stakeholders from CSOs, government, private sector (Banks, insurance companies), media, academia to discuss CDRFI issues and make policy recommendations for action.

What is required to ensure there is effective engagements on CDRFI issues in Malawi?

Collaborations and partnerships among national CSOs and other stakeholders around the CDRFI processes and activities in the country at present is low. Currently, Government, CSOs and other players such as academia and media are struggling for space and support to make meaningful contribution to the discourse of CDRFI in Malawi. There is therefore need of establishment of networks and partnerships among all these players in order to meaningfully advance CDRFI initiatives and policies in Malawi that will benefit citizens in the country. CISONECC and Care International have already initiated the partnerships and collaboration through operationalization of MAPs, but these will require support from Government non – state actors and all players in DRM sector.

Lake Chilwa dried up due to water recession in this file photo captured in 2016
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About the Author
Charles Mkoka
Charles Mkoka is Secretary General of the Association of Environmental Journalists. He is also Lead Partner for Ecosystems Partners, a privately owned firm he set up in 2015. He is a regular contributor of AEJ News and one of the editorial crew behind content gathering and production.



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