Howden calls for mobilisation of ‘vast sums’ to protect Global South

Global broker Howden has called for the creation of a range of loss and damage vehicles that it believes could mobilise reinsurance market capacity and capital markets to protect the most vulnerable countries in the world from climate-related disasters, which in many cases now threaten to wipe out 100% of GDP in a year. The message has been sent ahead of the COP28 meeting of world leaders to be held from 30 November until 12 December 2023, at the Expo City in Dubai. Howden supported new research from the University of Cambridge Institute for Sustainability Leadership (CISL), that it said demonstrates the transformative economic efficiency of risk-sharing systems to provide vulnerable countries with financial security from climate-related disasters. The research found that the smallest and most vulnerable countries risk losing over 100% of their GDP from extreme climate shocks next year. The researchers said this underlines the scale and severity of the risks faced by the so-called Global South, countries generally on or around the equator based in Asia, Africa and Latin America. “Small Island Developing States (SIDS) and other vulnerable countries bear these overwhelming threats almost alone. This can be solved,” said Howden. The report, which models loss and damage (L&D) implementation, reveals that these risks are insurable and proposes a solution using the power of (re)insurance and capital markets to dramatically scale up the impact of L&D funding. The modelling shows that the intolerable financial risks faced by this group of countries could be reduced to just 10% of GDP. The research, with input from public and private leaders from the Global South and developed economies, also outlines an action plan for L&D implementation across 100 less developed, climate vulnerable countries. It proposes leveraging donor funding to unlock “vast sums” from (re)insurance and capital markets to provide guaranteed financial protection to exposed communities now and through to at least 2050, said Howden. “As world leaders prepare for COP28 in Dubai, the report Risk sharing for Loss and Damage: scaling up protection for the Global South provides a clear pathway to L&D implementation to inform high-level discussions on the deployment of L&D funds,” said the broker as the report was published. “Regardless of where negotiated outcomes on L&D settle at COP28, private sector innovation will be needed to apply donor funds in the most efficient, effective way to enable vulnerable nations to prepare financially for the future,” it added. The key findings of the report are: Countries across the Pacific, Caribbean and Indian Ocean face foreseeable losses of between 50% and over 100% of annual GDP from extreme climate events, such as severe droughts, tropical cyclones and floods. By 2050, losses are set to grow between 10% to 15% due to climate change alone, approximately 0.5% per year. Despite the growing risks, modelling by the researchers revealed that these economies remain insurable. Under the proposed plan, an estimated $1bn of donor-supported annual pure premium could protect all 30 of the world’s smallest and most climate-vulnerable countries with a population of less than one million from losing more than 10% of their GDP from climate shocks, through a risk-sharing mechanism known as ‘Umbrella Stop-Loss Protection’. Despite growing risks from extreme climate events, the study reveals that this protection could be maintained through to 2050 and beyond, providing these countries with the necessary financial security to plan with confidence, attract investment, and make more informed decisions around resilient development and climate change adaptation. Risk sharing can be scaled up to form a key pillar of the L&D solution for all L&D recipient countries. A donor-supported annual pure premium of $10m per country equates to approximately $25bn of financial protection, contractually guaranteed, across 100 countries. This provides, for each of these countries, significant pre-arranged finance protection to support their highest priority needs. Rowan Douglas CBE, CEO of climate, risk and resilience at Howden, and chair of the operating committee at the Insurance Development Forum, as well as the report’s co-author, said: “The pure maths and dispassionate economics in this analysis are clear. Risk-sharing systems empower hard won loss and damage funds to provide structural financial security to the widest range of vulnerable countries. We can mobilise existing expertise, institutions and partnerships to put this essential protection in place quickly. With this ground-breaking research by CISL, world leaders are guided by an action plan based on a bedrock of open science, rigorous analysis, shared alignment, and collective purpose.”

Howden calls for mobilisation of ‘vast sums’ to protect Global South

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