Key Principles for Climate-Related Risk Insurance

Center for American Progress / By Pete Ogden, Ben Bovarnick and Yume Hoshijima

…Parametric risk insurance—insurance policies that use environmental measurements, such as wind speed or the amount of rainfall, to trigger an immediate payout—can play a key role in reducing the risks of climate change in developing countries. This report examines the ways in which parametric insurance programs can most efficiently limit the risks that climate change poses to developing countries. As G-7 leaders and the international community move forward with future programs to effectively address climate-related risks, the Center for American Progress has identified the following five principles by which to abide:

  1. Parametric insurance will require the support of international partners.
  2. Parametric insurance pricing should encourage and reward an individual or country for enhancing climate resilience, rather than incentivize extra risk taking.
  3. Parametric insurance programs can and should work in tandem with each other.
  4. Information gathered by programs should be shared and made available through a clearinghouse.
  5. Parametric insurance pools should be regionally or globally diversified…

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