Ingrid-Gabriela Hoven, Director General at Germany’s Federal Ministry for Economic Cooperation and Development (BMZ) reflects in an interview with GIIF on Germany’s commitment to fight climate change. At COP25, Germany pledged more than EUR 100million to support climate risk finance and insurance solutions under the InsuResilience Global Partnership, EUR10million of which are to support GIIF in 2020-2022.

GIIF: What do you think about the outcome of the most recent COP25 in Madrid?

COP25 stayed well behind expectations as it did not deliver concrete results in many crucial areas. Several important decisions have been pushed into the following year for COP26. It is clear, now more than ever, that each country needs to step-up and fulfil their pledges by taking meaningful action in 2020. We need more solidarity, especially on part of the developed countries, who pledged to jointly mobilise USD100bn of climate finance annually by 2020, but so far stayed behind this goal. But G20-states cannot wait for COP26 in Glasgow for things to happen. They need to act now. BMZ is very committed to supporting countries that are already severely affected by climate change, for example, through our support for the NDC-Partnership, the German Climate and Tech­nology Initiative, and our climate disaster risk finance and insurance portfolio under the InsuResili­ence Global Partnership.

GIIF: What are the main priority areas of BMZ in supporting sustainable climate risk insur­ance solutions in developing countries?

Our focus is on providing affordable and effective insurance solutions for poor and vulnerable peo­ple in order to close the protection gap. To achieve a sustainable outcome, it is vital that insurance schemes are embedded into a comprehensive adaptation strategy and disaster risk preparedness. The different strategic compo­nents have to feed into one other.

We support our partner countries in building an enabling legal and regulatory framework and provid­ing the insurance industry access to reliable data, like weather or satellite data, which is crucial for index insurance. Moreover, we facilitate that the target groups are educated about the value of insurance and that the required capacities are built among all actors in the insurance value chain so that they can fulfil their respective role. One tool we apply to engage the private sector are public private partnerships with insurance companies. We also work with intermediaries to address the distribution problem of marketing insurance for example to remote smallholders.

GIIF: What is your view on incorporating gender-responsive solutions in operational climate and disaster risk finance programmes?

Understanding gender roles and inequalities in the context of climate and disaster risk finance is essential for effective responses. Research on the impacts of disasters and extreme weather events shows that women, girls, and other marginalised groups are often disproportionately affected. In the aftermath of a disaster, they receive less support and suffer more due to social norms and unconscious bias. In many developing countries, the economic activity of women is concentrated in the agricultural sector, a sector that is strongly affected by climate impacts. At the same time, women are underrepresented in decision making positions in poor and vulnerable pop­ulations and have lower levels of resource and asset ownership to build resilience. As a result, women are often excluded from the formal financial system and tend to have limited access to social protection schemes and insurance policies.

We need to create awareness that women can be powerful agents of change when given access and control over resources. Women are generally more risk aware than men. But they also have other preferences with regard to insurance products and distribution.

GIIF: How do you see the role of innovative schemes to develop climate risk insurance, and what is being done by BMZ to promote and support InsureTech?

Innovation can improve the outreach, quality and cost of an insurance: The use of digital tools can make insurance accessible to remote smallholder farmers. For example, blockchain technology has the potential to make pay-outs of an index-based climate risk insurance more transparent and more immediate. Similarly, data on water consumption and cultivation practices can be stored using the same technology. Based on this enhanced information, insurance companies may be able to offer farmers insurance at lower premiums. BMZ is already promoting InsureTech solutions. In India, for example, we are supporting the establishment of a blockchain enabling smallholder farm­ers to document that they are growing cotton sustainably. If they adhere to prescribed, sustainable production practices, they could obtain affordable insurance cover and potentially higher sales prices.

GIIF: What are the next strategic goals for BMZ to increase resilience against climate change through risk financing and insurance?

Our key priority is to build additional momentum of the InsuResilience Partnership’s Vision to pro­tect 500 million poor and vulnerable people by 2025 against disaster and climate risk by pre-agreed risk financing and insurance mechanisms.

In order to scale-up risk financing and insurance, we are building on private sector risk capital and expertise in risk modelling, climate analytics, and the development of risk transfer solutions. On the margins of the UN Climate Action Summit in September 2019, we entered into a joint programme commitment with UNDP and the Insurance Development Forum to systematically deliver technical assistance to 20 priority countries exposed to climate risks by 2025. This will include climate and disaster risk modelling, risk model application, risk transfer analytics, and the integration of risk transfer into development processes.

BMZ also supports the Global Commission on Adaptation (GCA). We want to ensure that risk data and models will be available, improve access to appropriate micro insurance for 150 million people, most of them smallholders, and increase the financial pro­tection of critical infrastructure against climate risks.

A holistic approach to climate and disaster risk finance and insurance, building on a sound layering of risks, is essential to address various types of risks with the most cost-effective solutions. This also implies extending the view on risk finance, by looking at synergies with other important subject matters, such as social protection, anticipatory financing, financial resilience of infrastructure and nature-based resilience.