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Call for inputs on key messages
 





The Executive Committee of the Warsaw International Mechanism invites relevant organizations and experts to provide relevant information in response to the key messages below, including making recommendations for addressing any gaps and challenges highlighted in the key messages.

The key messages have been developed by the Executive Committee in the context of Action Area 7 of its initial two-year workplan to encourage comprehensive risk management.


The Executive Committee looks forward to receiving relevant information
at loss-damage(at)unfccc.int.


Key messages
 
a) Enabling environments are central to the effective employment of financial instruments
(i) Favourable policy and institutional environments are an important precondition for the successful introduction or scaling up of financial instruments.
(ii) Accelerating the building of capacity that already exists within the insurance system could be beneficial, although in the context of less developed countries and markets, ordinary market forces are likely to be insufficient. Thus, continued careful use of donor support, such as for the initial capitalization of risk pools, may be necessary to accelerate the closing of coverage and preparedness gaps.

b) Putting in place financial instruments requires rigorous risk assessment
(i) Thorough risk assessment and analysis is a prerequisite for using financial instruments and tools in the loss and damage context.
c) Comprehensive climate risk management requires a smart combination of financial instruments and tools
(i) Different types of financial instruments and tools should be embedded in strategies that include risk prevention, reduction, preparedness, response and recovery.
(ii) Comprehensive climate risk management should build on and expand the scope of existing strategies, and synergize with financial schemes designed to address risks not directly associated with climate change.
(iii) Insurance can be a part of a comprehensive risk management process that includes emphasis on risk identification, risk reduction and risk assessment.
(iv) In addition, more innovative tools to deal with particular losses and damages, such as those caused by slow onset events, could be integrated.
d) Linking financing for disaster risk management and adaptation bears large potential for minimizing, averting and addressing loss and damage
(i) There is significant potential in linking disaster risk and climate adaptation financing. In this regard, financial instruments and tools that can address the risks of loss and damage should be integrated into national adaptation plans and other relevant processes.
(ii) Risk financing strategies should be designed in a sustainable and viable manner, both in economic and social terms.
e) Ongoing capacity-building and appropriate donor engagement is required for the effective use of financial instruments
(i) Ongoing capacity-building is needed so that users are able to build demand for financing instruments and enhance their capacity to produce comprehensive risk management plans and integrate risk finance.
(ii) Donor engagement is needed, especially in the early stages of a programme or new instrument.
f) Specific financial instruments and tools are needed to reach the most vulnerable
(i) Special attention for capacity-building and financial instruments are needed in order to enable the most vulnerable to partake in comprehensive risk management approaches, given many financial instruments require preconditions, such as a certain level of liquidity or credit worthiness that the most vulnerable are not able to meet.
(ii) Integration of social protection schemes, disaster risk reduction and climate change adaptation can help improve the livelihoods of poor people.
g) Public-private partnerships can enhance effectiveness of financial instruments
(i) Expertise and experience of the private sector is vital to the effective application of most financial instruments.
(ii) Governments can incentivize the provision of financial products by the private sector.
(iii) Given that loss and damage affects the most vulnerable segments of populations, the role of the private sector in protecting these populations needs to be clarified and, where appropriate, complemented by public policies, for example social safety nets.
h) Existing financial instruments and tools may be inadequate to address the full spectrum of losses and damages associated with the adverse effects of climate change
(i) Important gaps remain regarding instruments that could be applied in the context of slow onset events and for cases of non-economic losses and damages.
(ii) Further analysis may be useful for a better understanding of what kind of ‘novel’ instruments could fill such gap.
(iii) Discussion may be needed regarding the appropriateness of financial instruments for non-economic losses.
(iv) Existing financial instruments may fall short of generating financial resources at a scale sufficient to meet the growing requirements related to potential future losses and damages associated with the adverse effects of climate change.
(v) Further attention may be needed for innovative schemes, instruments and tools in order to meet the growing demand for financial instruments within the interconnected areas of adaptation to climate change, dealing with loss and damage, disaster risk management and sustainable development.
(vi) Consideration of the suitability of financial mechanisms in terms of effectiveness and affordability (‘does it work and for whom’?) is needed.
(vii) Considerations on funding options – who would pay for the financial instruments and who would be the recipients – is needed.
(viii) Consideration of the extent of demand for insurance and needs of end-users is necessary to develop an effective insurance program, as most of the discourse to date has focused on the supply and operational aspects of insurance.
i) Insurance can be a valuable risk management tool, but it is not the only one
(i) Limitations and gaps exist, e.g. low-lying island existential risks and certain slow onset events.
(ii) Further guidance is needed about when to use financial instruments, including insurance, in the loss and damage space and when not. It could be helpful to differentiate among the instruments most useful for various types of loss and damage.
(iii) Implementation and ongoing monitoring requires insurance regulatory oversight to ensure effectiveness in meeting objectives and continued sustainability.
(iv) The typical one-year time horizon of many insurance products represents a limitation, especially for slow onset events. Modifications of current insurance programs/products may be needed.
j) Ideally, insurance premiums should be risk-related to promote loss prevention/loss reduction, considering affordability and availability
(i) Well thought-out program design is important to:(i) enhance achievement of risk management objectives; (ii) determine appropriate roles of the public and private sectors that may differ by jurisdiction, especially to promote participation and determine appropriate funding/premium payments; (iii) focus on the vulnerable population.
(ii) Equity and fairness aspects need to be considered at the design phase.