“Insurance makes people more aware of weather-related and climate risks”

Droughts, floods and storms are occurring more frequently worldwide as a result of climate change, threatening the livelihoods of millions of people, especially in developing countries and emerging economies. Climate risk insurance reduces the risks associated with extreme weather events and builds resilience. But who has access to this type of insurance? And which types of risks are covered? We talked to Christina Ulardic, Head of Business Development in Environmental and Commodity Markets at Swiss Re Corporate Solutions Ltd.

Ms Ulardic, which types of risks are covered by climate insurance?

Christina Ulardic: Swiss Re insures against a wide variety of weather-related and climate risks, such as crop losses resulting from drought. Let me give you an example: for two years in succession, large-scale payouts were made to farmers in South Africa as a consequence of the El Niño phenomenon. However, it is important to recognise the distinction between climate change, which is a long-term process, and weather, which – although dependent on the general climate – can change very quickly. From an insurance industry perspective, both are relevant. Insurance contracts generally run for one year, so we are interested in both the current weather situation – such as the exceptionally warm and wet winter that we are seeing in Germany – and in long-term climate trends, which have the potential to cause more frequent droughts in future and thus affect insurance risk.

So is climate risk insurance mainly aimed at the agriculture sector?

Christina Ulardic: Yes, but not solely. Agriculture is undoubtedly the most important sector because it is so dependent on the climate. But weather and climate change are also highly relevant to industries such as energy and tourism. Let me give you some examples: if the winter is unseasonably warm, less heating is required, which means that energy sector revenue decreases. And more frequent hurricanes in the Caribbean mean less tourism. But our target groups include other industries as well. Take a South African beverage firm that generates 80 per cent of its turnover during the hot dry season in December and January: if the climate changes and there is more rainfall during these months, its revenue will take a hit.

Climate risk insurance: when weather and climate become hazards

The purpose of climate risk insurance is to prevent an extreme natural event from turning into a disaster that not only destroys homes and crops but permanently threatens the affected communities’ livelihoods. Read on to find out more about the pros and cons of climate risk insurance and why it is becoming more important.


How do you reach your potential clients? Take a smallholder farmer in India – how can he or she access insurance against climate-related crop losses?

Christina Ulardic: Let’s not forget that many people in developing countries are completely unfamiliar with the concept of insurance as a way of spreading risk. After all, someone who earns just two US dollars a day probably doesn’t even have health insurance. That’s why, as part of our business model in developing countries and emerging economies, we work with organisations, companies and other stakeholders that are more closely engaged with the world of smallholder farming. This might be a non-governmental organisation, for example, or it might be a local seed vendor. We begin the process by finding out about the potential clients’ needs. Then we develop an insurance product and set a price. And finally, the local partners present the insurance product to prospective customers and explain in detail how it works.

How do you assess the level of risk faced by your customers?

Christina Ulardic: There are two ways of doing this. Until a few years ago, we used the traditional method of looking in detail at each individual activity and assessing how it was being managed and the level of losses that it could potentially incur. Obviously, that’s a very complex and time-consuming process. In Brazil, where there are some very large ranches, this is still a workable approach, but it isn’t feasible to apply this method to the very large number of smallholders who farm tiny parcels of land in Congo, for example. So over the last few years, we have been making more intensive use of satellite data and weather station reports in order to assess risk. And we often combine this method with the traditional approach.

If we collate this statistical information into datasets over a period of years, we can spot patterns that are emerging, such as more frequent tropical storms or floods or longer periods of drought that may continue and intensify in future. Generally, it is the farmers themselves who are the best judges of what is happening to the climate. I worked in Africa for seven years, and not once did I meet a farmer who would have said that the climate wasn’t changing. Many of them are telling us that rainfall patterns are different today compared with a few years ago.

What else can be done to provide better protection for people who are exposed to weather-related and climate risks?

Christina Ulardic: Insurance is a way of spreading risk across all policy holders, but it can only ever be part of a package of measures. Generally speaking, the first step is to reduce risk, for example by introducing irrigation programmes in arid regions

This is the approach pursued by the World Food Programme and Oxfam America with their R4 Rural Resilience Initiative, which aims to increase the resilience of smallholder farming families by enabling them to manage climate-related risks. Among other things, the scheme gives people the option to work for their insurance premiums (pay through labour). For example, they engage in local projects to build sustainable irrigation systems as a means of supporting climate change adaptation. This type of scheme puts climate risk insurance within everyone’s reach and gives smallholder farmers the chance to play their part in mitigating climate risks in their own country.

The R4 Rural Resilience Initiative

The 4 Rural Resilience Initiative (R4) was launched in 2011 to enable vulnerable rural families to increase their food and income security by managing climate-related risks.

It utilises a combination of four risk management strategies:

  1. Risk reduction (by improving resource management)
  2. Risk transfer (via insurance)
  3. Prudent risk taking (through livelihood diversification and microcredits)
  4. Risk reserves (promoting saving patterns)

By early 2017, R4 had reached more than 43,000 smallholder farmers in Ethiopia, Senegal, Malawi, Zambia and Kenya. They built up savings, took out insurance policies and found alternative sources of income in order to boost their resilience to – and protect their livelihoods from – the impacts of weather-related disasters such as extreme droughts and floods.

In 2015 and 2016, around USD 450,000 in payouts was distributed to smallholder farmers in Ethiopia, Senegal and Malawi who had been affected by the El Niño phenomenon.

Video: The R4 Rural Resilience Initiative

Do people become less vigilant if they have insurance?

Christina Ulardic: Not at all. Everyone wants to avoid losses as far as possible. Yes, the policy holder will receive a payout to rebuild their house if it has been damaged by floodwater, but no one wants their home to be inundated year after year. Insurance makes people more aware. The amount of the premium is a good indicator: the higher the price, the greater the risk of losses from weather-related and climate risks. Once they become aware of the risks, farmers can take practical measures to protect themselves in addition to taking out insurance.

February 2018

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