Disaster losses are rising dramatically in India. Since the re/insurance industry has a critical role to play in disaster risk reduction and climate change adaptation, it should be a part of the solution. India and Switzerland – two countries, although vastly different – could cooperate through re/insurance solutions to advance adaptation and climate justice.
Disaster losses in India have skyrocketed in recent decades. Among the top ten global economic loss events in 2019, the Southwest Monsoon-related floods in India are at the seventh position, with 1,750 deaths and USD 10 billion worth economic loss, of which only USD 0.2 billion accounted for insured loss. Cyclone Amphan that hit India and Bangladesh in May 2020 is touted to be the “costliest cyclone ever recorded in the North Indian Ocean,” accounting for “US$13 billion worth of damage.”
In India, insurance penetration continues to be low, despite the growing frequency and intensity of disasters. These trends are likely to continue due to rising temperatures and other variabilities (wind speeds, precipitation etc.) associated with climate change. They could not only erode developmental gains, but also aggravate socio-economic vulnerabilities through loss of livelihoods, health, incomes etc. In such a scenario, this article analyses the role that re/insurance sector can play in Indo-Swiss cooperation on climate change.
Re/insurance industry critical to climate policy
The re/insurance industry is a major stakeholder in addressing the risks of climate change, in terms of not just post-disaster reconstruction but also strengthening preparedness by driving scientific urban planning, preparing environmental risk assessment tools etc. Moreover, the industry is significantly affected by climate change. In 2019, less than one-third of the economic losses incurred due to disasters worldwide were covered by insurance. Hence, the industry is under pressure to adapt as well.
In the climate change negotiations, Switzerland has been pushing for raising adaptation finance by not relying entirely on public sources but encouraging the private sector to invest in measures that could help reduce vulnerability and enhance climate resilience. For instance, insurance companies have also been collaborating with the government, businesses, academia and others to expand research on the “economics of climate adaptation,” thereby producing “expertise on insurance mechanisms and innovation to find new schemes of risk management and adaptation funding.”
India needs re/insurance solutions
In India, insurance against disasters is not common due to the lack of purchasing power and awareness as well as apathy towards insurance in general. So far, the government has been compensating for the losses – a model that is not sustainable as the losses are increasing year by year, and economic losses far outweigh the insured losses.
While some insurance schemes exist, India requires mass insurance and/or an insurance catastrophe pool to meet the increasing need of insurance for climate adaptation. Although there are initiatives such as home insurance policies and weather-based loan portfolio insurance for farmers, developed by private companies, including jointly with foreign re/insurers, there are very few takers.
Step up Indo-Swiss climate cooperation in re/insurance sector
India and Switzerland have been cooperating with each other on climate change in the past decade. In 2019, the two countries signed a Memorandum of Understanding (MoU) on Technical Cooperation in the field of Climate Change and Environment; and ‘climate change risk management’ features prominently in it. This opens up an avenue for the two countries to work towards designing, developing and implementing/introducing more joint ventures, risk management tools, and knowledge sharing mechanisms. However, it is also important that they transform it into a long-term cooperative arrangement rather than stopping at time-bound, project-based activities.
Swiss Re set up an Indian branch in 2017 and since then, it has been involved in sectors such as crop insurance. In 2018, after the Kerala floods, in which the losses surged over $3 billion, the state government invited Swiss Re, among others, to recommend insurance solutions to disaster management. India is a promising emerging market for re/insurance products, thereby also providing Switzerland an option for directing climate finance into developing countries such as India, targeted at adaptation in critical sectors such as agriculture, health and infrastructure.
In 2019, India launched the Global Coalition for Disaster-Resilient Infrastructure. One concrete step for Switzerland to increase its climate change cooperation with India would be to join this coalition. This forum can also be used to spearhead a climate insurance programme. This could make disaster insurance much more affordable in India and at the same time, advance both adaptation and climate justice – something that developing countries such as India with huge proportions of vulnerable populations have been demanding for a long time.
Picture by Piyush Priyank retrived from Unsplash
