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Designing climate insurance subsidies: political economy analysis and methodological guidance


Image credit:Hurricane Matthew hits Haiti, 2016. Credit: NASA Earth Observatory image by Joshua Stevens / Flickr. Image license:CC BY 2.0

In partnership with the InsuResilience Global Partnership (IGP) secretariat, ODI has produced three advisory reports exploring issues in relation to the design and use of premium and capital support (PCS), to help guide the further development of climate and disaster risk financing and insurance (CDRFI). These reports also contribute to the Global Shield against Climate Risks, a major initiative launched at COP27 in Sharm el-Sheikh. The Global Shield aims to increase ‘pre-arranged finance’, which can be disbursed quickly and reliably in anticipation of - or just after - a disaster occurs, to protect people and governments in developing countries against climate change impacts.

The political economy of premium subsidies: searching for better impact and design investigates the political economy of country decision-making in relation to sovereign-level climate and disaster risk finance and insurance, and the role of PCS in these decisions. The study aims to further global understanding on the uptake, size and value of premium and capital support. It also analyses the political economy of donor decisions in relation to the provision of PCS.

Methodological guidance to determine the ‘size’ of premium and capital support (PCS) at macro level is an advisory report based on the SMART Principles for PCS, developed in 2021 by the IGP for the purposes of scaling up climate and disaster risk and finance insurance solutions. It proposes methodological guidance to define the ‘scaling factor’ to determine the size/amount of premium support allocations. This guidance aims to support actors who are part of the IGP (such as the Programme Alliance) and policymakers and practitioners who are responsible for such allocation decisions.

Methodological guidance to assess the value for money of premium and capital support towards climate and disaster risk finance and insurance contributes to the practical implementation of the ‘Value for Money’ (VfM) principle, which describes the impact each dollar of PCS has on the resilience of poor and vulnerable countries and people. Aiming to inform allocation decisions, it provides a framework and methodology for the ex-ante assessment of the VfM of PCS options. This includes allowing decision-makers to compare premium versus capital support towards climate and disaster risk and finance insurance solutions, synthesising the effects of the different support options within one country, or of the same option across different countries.

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