Insurance solutions in the context of climate change-related loss and damage : Needs , gaps , and roles of the Convention in addressing loss and damage 1

This UNU-EHS Policy Brief outlines the role of insurance in the context of adaptation and loss and damage. It further highlights a set of recommendations to the UNFCCC as a facilitator of short and long-term strategies of loss and damage. Produced by the Munich Climate Insurance Initiative (MCII), the document is a submission to the Subsidiary Body for Implementation Work Programme on Loss and Damage. MCII is hosted at UNU-EHS.

The burden of loss and damage -the actual and/or potential manifestation of climate change impacts that negatively affect human and natural systems -is not evenly distributed across the world because of differing exposures, vulnerabilities and coping capabilities. Because the risks often fall more heavily on those least able to reduce or recover from them, there is a need for assistance for the most vulnerable people and countries.
The challenge of addressing both the impacts of weather extremes and incremental change is daunting, yet there is a great need to incorporate pro-active planning and management of climate-related stressors in decision-making now and in the future by avoiding, reducing and sharing the risks imposed by climate change.
Insurance-related approaches are designed for managing losses and damages caused by events which cannot be foreseen where and when they occur. Risk assessment as required by insurance approaches can help identify climate stressors and thresholds. Insurance can help manage loss and damage from weather extremes in ways that bolster rather than diminish efforts to achieve climate resilient development. Prudently employing a combination of insurance-like approaches/solutions with risk reduction measures, such as early warning, education, infrastructure strengthening and maintenance and livelihood strengthening, creates a space of reduced societal disruption when extreme weather events happen. Approaches that manage unexpected extremes can create a buffer for developing countries (i.e. by providing financial liquidity through fast payouts immediately after a loss event), and help the international community better plan issues like financial needs (for adaptation and managing loss and damage).
The hazard situation for the most vulnerable people in developing countries is in many instances increasing due to processes they have not caused themselves. In the interest of fairness, countries, which have contributed to a larger share of human induced climate change, should consider supporting risk management activities of the most vulnerable.
We would like to kindly invite the audience to send us their comments on the topics discussed in this document. It is our central aim to continuously support policymakers in their decisions, therefore we consider the discussion outlined in this policy paper as ongoing and welcome your feedback. The submission further provides insights into design principles that could guide a range of approaches including an international mechanism (para 5).
MCII underlines the intention of this document to encourage further input and feedback on the views expressed herein, because it is our central aim to ensure an ongoing refinement of the very complex and innovative nature of this topic to be able to continuously support decision makers. Please feel free to submit your comments on the areas highlighted in this Policy Brief.

Summary of recommendations
The Convention has a unique role to play in facilitating shortand long-term strategies to address loss and damage. At COP 18, the Convention should include a global climate risk insurance facility in its decision on loss and damage. The climate risk insurance facility (operationalized through regional risk management platforms) could fulfill three functions to address loss and damage, and to also complement adaptation and mitigation efforts: AE Operationalize a global risk insurance facility through regional risk management to address loss and damage, including regional risk insurance pools, which in the longer term could become part of a future global system for managing weather extremes. This operationalization would include appropriate financial and other support. The Convention should foster long-term commitment to risk transfer in order to enable sustainable solutions and partnerships.
A global approach to risk transfer, embedded in a coherent strategy to manage the negative impacts of climate change, is such a sustainable solution to parts of the loss and damage spectrum.
An international climate risk insurance facility is needed to better diversify risks of loss and damage from extreme weather events, lower the costs of managing these risks, and ensure more timely and targeted delivery of support when catastrophes strike. This could be part of a wider coordination function of a loss and damage mechanism, and it could be operationalized through a series of regional risk management platforms (including risk insurance pools), which collaborate and coordinate on the management of loss and damage.

Introduction
The Cancun Adaptation Framework recognized "the need to strengthen international cooperation and expertise to understand and reduce loss and damage associated with the adverse effects of climate change, including impacts related to extreme weather events and slow onset events." Paragraph 28(a) of the Cancun Adaptation Framework invites views and information on possible approaches to address loss and damage, including a climate risk insurance facility (para 28(a)): AE "Options for risk management and reduction; risk sharing and transfer mechanisms such as insurance, including options for micro-insurance; and resilience building, including through economic diversification" (para 28(b)) AE "Approaches for addressing rehabilitation measures associated with slow onset events" (para 28(c)).  1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

The burden of loss and damage today
In the last three decades, a general upward trend has been recorded for frequencies of weather-related loss events. This trend is detectable in rich countries as well as in poor countries.
The average annual weather-related disaster losses in the last five years (2007 to 2011) in the groups of economies with "low" and "lower middle" economies have reached US$ 1.3 billion and US$ 6.8 billion, respectively. Data from 1980 onwards reveal that far more than 80 per cent of people killed lived in developing countries.
In Figures 1 and 2  The countries with the lowest income still show the lowest numbers of events, but they also show the largest increases in the last three decades (see Figure 2). The relative number of loss events has increased by a factor of six in the countries with the lowestincome economies, while in the richest countries the factor has also increased, but just by a factor of three, i.e., half as high.
It is an open question to what extent this difference is due to increasing wealth in developing nations, and more frequent extreme weather events, respectively. As a measure of managing future risks, we suggest taking very seriously the possibility that changing weather patterns might impact developing countries severely in decades to come. This section outlines key functions that insurance can play -at the individual, community, country, regional (international) and global levels -in the context of loss and damage. Section 4 revisits this discussion by asking what the Convention can do to harness these functions, possibly in the form of a climate risk insurance facility, which is operationalized through regional risk management platforms that address climate change-related loss and damage.
It must be emphasized, however, that insurance is not a universal remedy for all types of loss and damage resulting from climate change. As Figure 3 shows, insurance options can support adaptation and risk resilience for extreme weather, but are not appropriate for many, usually slower-onset, climate-induced impacts.
As we see in Figure 3 (see page 15), insurance is not appropriate or generally feasible for slowly developing and foreseeable events or processes that happen with high certainty under different climate change scenarios. The losses from long-term foreseeable risks, such as sea level rise, desertification and the loss of glaciers and other cryospheric water sources, are estimated to be substantial in the future. Even for weather-related events, insurance would be an ill-advised solution for disastrous events that occur with very high frequency, such as recurrent flooding. Resilience building and prevention of loss and damage in such instances may be cost-effective ways to address these risks.
Insurance is a feasible adaptation measure to address extreme weather events, including insurance for households (e.g., micro-insurance), farms (e.g., index based crop insurance) and also governments with sovereign insurance. As we will be discussing in this document, insurance arrangements at these scales might be usefully supported with regional and global risk management facilities.

Insurance as adaptation
By spreading losses among people and across time, insurance reduces the catastrophic impact of disasters, and enables a timely recovery. By reducing the burden of loss and damage (if not the average loss), insurance is thus an adaptation measure.
In addition to providing timely capital after a disaster, as illustrated in Figure 3, insurance can and should be linked with risk The following principles suggest how insurance can be guided in order to fulfil this mission.

Intelligent mix: Prevention and insurance should be closely linked
with an ex ante climate risk management strategy that places priority on preventing human and economic losses. Action can be guided by a risk layering approach: Cost-effective risk reduction is the first priority to limit loss and damage. The costs of preventing low-impact frequent events are typically much lower than the losses that would occur otherwise. Alternatively, prevention measures for high-impact, low-frequency events can be far costlier with respect to the losses prevented. For this high layer of risk, insurance and other risk transfer mechanisms may be more appropriate.
Economic efficiency and risk based premiums: By pricing risk, insurance can provide an important price signal to incentivize risk reducing behaviour. For example, high insurance premiums will discourage people from living in high-risk areas. Care should be taken, therefore, not to significantly distort insurance prices or market competition, while addressing affordability and accessibility needs.
Solidarity and responsibility: While risk-based pricing promotes loss reduction, an equally important principle relates to solidarity and the allocation of responsibility for climate change impacts.
The loss burden can be far more severe in vulnerable developing countries and, within these countries, among poor households and communities. Since these communities have contributed little to climate change, it is incumbent on countries with high per capita emissions of greenhouse gases to take a share of the responsibility. Pilot projects are demonstrating that marketbased insurance can be a viable option for providing security to the poor, but generally not without donor support. Combined with other forms of social protection, premium support for the poorest will be an important feature of any insurance approach for vulnerable people and countries. This can take many forms, including direct financial support that minimally distorts incentives, capital support for local insurers (thus lowering premiums), technical assistance and education programmes.
Subsidiarity principle: Decisions should be made as close as possible to their point of application and where the need is manifest.
Transparency and accountability are important criteria for the creation of insurance programmes. International finance may best be allocated on a strategic basis and not involve international micro-management at the project level.

Assess loss and damage potential
Assessment of loss and damage is a prerequisite for identifying needs and policy priorities, and it is a core function of insurance approaches. Risk assessment frequently serves to bring attention to the hazard potential, the exposure and vulnerability, and in this way it can raise awareness and expose new options for managing the risks.
Publicly collected and open-source data and risk assessments, as well as open-source hazard modelling can contribute meaningfully to national and regional risk management and investment decisions. Insurance risk assessment can facilitate regional and international data analysis, such as establishing data standards, comparability, methods and data repositories.

Incentivize loss reduction and resiliencebuilding activities
Countries can define nationally appropriate risk reduction priorities, and identify and make plans for reducing weather-related risks. The principles of climate resilient development (including principles from the Hyogo Framework 7 ) can guide these actions.
Such activities include: AE Mapping risks and avoiding settlements in high-risk zones; AE Building hazard-resistant infrastructures and houses; AE Protecting and developing hazard buffers (forests, reefs, mangroves, etc.); AE Improving early warning and response systems; AE Building institutions, and developing policies and plans; and AE Developing a culture of prevention and resilience.
Many of these measures will be cost-effective for low-impact events but not for very extreme disasters. This suggests a layered approach to risk management as discussed in Box 1.
Applying loss-avoiding measures can in many contexts (for example, building hazard-resilient structures) reduce insurance premiums, and in this way insurance sends a signal to households, firms and governments to reduce risks. Additional design elements, besides reduced premiums to reward risk reduction, can be incorporated in insurance contracts. Ongoing participation/renewal of insurance coverage with public or international support could be dependent upon evidence that participating vulnerable countries are making tangible progress in implementing their loss reduction plans.

Reduce financial repercussions of volatility and create more certainty in decision-making
The volatility in economies and social systems caused by weather extremes is a challenge for social and economic development.
Insurance can help create a space of certainty within which investments and planning can be undertaken. This certainty, in turn, can help create an environment more conducive to climateresilient investments in sectors such as tourism and agriculture (typically heavily exposed to climatic stressors), in job creation and in market development. Moreover, insurance can provide the safety net that is essential for taking productive, yet high-risk, investments. As an example, a micro-insurance scheme in Malawi enabled farmers to receive loans for purchasing hybrid seeds that increased their productivity five-fold (Suarez et al., 2008). Source: Churchill (2006 Can risk transfer help ease climatic stressors and related poverty? 8 Risk is ever present in the lives of the poor. When a crisis occurs, the poor often resort to a variety of coping strategies, such as reducing food consumption, selling assets, asking family or friends for help, changing livelihoods or moving away, taking children out of school, and borrowing from moneylenders or micro-finance institutions. Selling productive assets or borrowing from money lenders that charge high interest rates can jeopardize the economic basis of the household. Few have access to formal insurance services. The result is that their trajectory out of poverty follows a zigzag route: advances reflect times of asset building and income growth; declines are the result of shocks and economic stresses that often push expenditure beyond current income (see Figure 4). The role of micro-insurance, like any effective risk management instrument, is to temper these downturns, which are major impediments to escaping poverty.

Provide timely finance to cover loss and damage
As discussed above, there are numerous roles that insurance can play -at the individual, community, country, regional (international) and global levels -in the context of loss and damage: providing security against the wholesale loss of assets, livelihoods and even lives in the post-disaster period; ensuring reliable and dignified post-disaster relief; setting powerful incentives for prevention; providing certainty for weather-affected public and private investments, and not least, spurring economic development and easing disaster-related poverty. A major advantage of insurance over post-disaster financing options, including aid, loans and family assistance, is its timeliness and reliability. In comparison with (usually) ad hoc disaster assistance, insured clients have a "right" to post-disaster compensation. Index-based contracts, which require no inspections for claim settlements, can in principle provide payouts immediately following the "triggering" event. Timely payouts, in turn, enable households to purchase food and other necessities without resorting to selling household assets (that can trap them in poverty), and they help governments avoid fiscal deficits and costly post-disaster loans.

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Early warning, community disaster teams and risk transfer in Sofala, Mozambique  • tailor-made products and effective administration (existing professionalism); • sustainable solutions (since insurers will look for economic sustainability); and • a real public-private partnership. 3. Using insurance to address loss and damage: Examples from local, national and regional levels Private sector solutions for well-off households and governments. In some cases, countries may choose to share a layer of risk with the private insurance market for assets such as public infrastructure (sovereign insurance). Frequently, the private sector reinsurance markets are involved in covering some portion of the largest risks a country or sector may face from extreme weather events. Private sector solutions can be "traditional indemnity products", for which insurance payouts are made proportionate to the loss, or "parametric products", which establish parameters or triggers for extreme events to determine insurance payout levels. In the latter case no loss adjustment -which as a rule is very time-consuming -is needed, and payout levels are agreed to in advance for the particular trigger levels. However, parametric products bear significant "basis risk". This technical term describes the potential mismatch between the defined trigger level (e.g., wind speed of amount of precipitation) and actual loss occurrence. However, the rapid money flows in parametric (or index products) makes them very attractive for all stakeholders. AE Public support to enable participation of the low-income sector. Public sector insurance programmes use public resources to develop approaches, support premium payments and make payouts. In some programmes, publicly funded insurance payouts come in a form that is valuable to the target group. This may be as seeds and agricultural products for low-income farmers, rapid cash payouts to poor households immediately after an extreme event, or benefits to sectors like tourism or agriculture to help them recover quickly after an extreme event.
. Note: A weakness of publicly funded insurance schemes is that they can be destabilized through changes in government priorities, lack of sufficient funding and insufficient support to sectors or community-level clients. The approach facilitates access to new market segments. Its partners include a company specializing in matching local needs with tailored risk management products, a regional facility (CCRIF) with access to governments and understanding of the regulatory environment and ability to serve as a regional risk aggregator, and a reinsurer with expertise in modelling, product structuring and international practice and policy. The regional level approach allows underserved low-income groups to gain protection from weather risks, and foster development of local enterprise.

Insurance
For more information, visit www.climate-insurance.org Public-private partnerships can offer the market sustainability of private sector approaches, and the flexibility and innovation of public sector approaches. Subsidiarity means that each partner will have clearly defined, distinct roles to play. The public sector may undertake data collection, needs assessment and shape the regulatory framework for insurance-related approaches.
The public sector may work with private sector actors to design tools that meet the targeted needs, and may under appropriate circumstances provide some financing to support the cost of the programmes (such as when low-income groups may not be able to afford to pay To better link programmes aimed at improving the resilience of low-income groups at the local level with risk transfer, several gaps need to be overcome. Two gaps are mentioned in the following paragraphs, and some additional gaps will be discussed again in the section dealing with the role of the Convention (see below).

Basic financial infrastructure and regulatory environment
Many insurance schemes at the local level are started without the benefit of basic foundational requirements -this implies that pilot local-level approaches often face almost insurmountable obsta-

National: Combining risk transfer and measures to protect national development priorities
Retaining and transferring the appropriate risk layers can contribute to achieving climate-resilient development. For example, in a comparative study of countries with different insurance market penetration by the World Bank, the post-catastrophe patterns of economic growth have been evaluated. In Figure 5, the mean and the possible ranges of a weather-related catastrophe triggered trend deviation of the gross domestic product (GDP) development is shown (solid lines mark the mean developments, dotted (for high insurance penetration) and dashed -for low insurance penetration -the range).
The study shows that in countries with high insurance penetra- This would increase the resilience of these countries in respect to these hazards. reductions in GDP, which inhibits their further development. If several such extreme weather events occur within some years they will drive poor countries even further into the poverty trap.
Studies like this illustrate the potential that insurance-related approaches -public, private and combinations -have to increase the resilience of countries in respect to extreme weather events.
Most developed countries already benefit from the shockabsorbing function of insurance measures, public and private, as well as public-private risk transfer arrangements. The map below shows the distribution of insurance penetration worldwide.
Reliable data are essential to adequately assess the potential loss and damage from extreme weather events, give a price to risk, and come up with options to manage that risk (including insurance). However, countries interested in exploring risk transfer solutions frequently have to deal with inhomogeneous, inadequate or inappropriate data. Historical data are often not available for longer time periods, and are only occasionally in digital format.
Many countries struggle to establish sufficient networks of weather stations, making the assessment of weather-related risks difficult. Data gathering and quality assurance of the data often require time and resources to improve the data, e.g., through interviews or by transferring historical data from written documents in electronic databases. Some databases do exist about loss and damage from weather-related extremes such as those from reinsurers (Munich Re NatCatService or the Swiss Re sigma as well as EM-DAT of CRED). The compilation of meaningful, useful data on loss and damage especially for developing countries remains a premier obstacle for those countries to develop more comprehensive approaches (not only insurance) to address loss and damage. Where insurance exists or is built up, data gathering and processing exist, too -and the interest to collect better data is systemic. Thus, insurance can address many of the problems described above.
3.4 Regional and international: Combining risk transfer with regional risk capacity and forecasting A trend is emerging in which countries in a region create insurance pools to share and transfer loss and damage from extreme weather events. An underlying principle of insurance is the diversification of risk -reducing the likelihood that an insurance scheme will be overwhelmed by the same types of stressors (a single event can cause simultaneous losses to many insured assets) or the same group of insured needing a payout all at the same time -such as a community where most households are affected by the same stressor. A multi-country or multi-region approach can prove viable where local and national pooling arrangements may not be feasible for statistically dependent (co-variant) risks that cannot be sufficiently diversified. For this reason, primary insurers, individuals and governments (particularly in small countries) do and may need to rely on risk-sharing and transfer instruments that diversify their risks regionally and even globally.
Light governance structures for risk pools. For regional and international-level insurance approaches, examples such as the CCRIF show that such facilities are able to contribute to regional risk management efforts as well as make rapid payouts in the case of extreme events. Such institutional models can be designed to have transparent governance structures, allow private sector engagement, and can serve as conduits for international adaptation funding. As with lower-level risks pooled at a national level and then transferred at a regional level, insurance pools at the regional level would need a fund of last resort to provide a reinsurance function for very rare catastrophic events. A fund of last resort, or global climate risk insurance pool, would be important because this is a level at which large private sector entities may not engage due to the capital requirements to cover the risks. At this level, most of the money paid in premiums for the highest level of risks relate to the costs of keeping capita. International support, such as in a global climate risk pool, could ensure the needed cover for regions and countries following an event.

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Africa Risk Capacity (ARC) -an approach linking contingency planning, insurance for food security and drought in Africa African countries regularly experience drought, which often turns to famine if timely assistance is not available. Traditional ex post humanitarian aid often comes too late to avoid loss of life and property for many people. Today, luckily, organizations such as the World Food Programme support victims of drought.
Often, the support comes late due to a time-consuming process (support request, verification, confirmation, claims assessment, payout etc.). With ex ante mechanisms (e.g., money flows after no rain in April, because there will be known effects on yield in September), people can be served even before the crisis materializes.
Establishing contingency funding, or resources, that become available automatically if an extreme drought, flood or cyclone occurs in a vulnerable area, ensures a more timely and reliable response. Because extreme weather events do not happen in the same year across the continent, pan-African solidarity in the creation of a disaster risk pool was deemed financially effective. Such a facility will provide participating Member States with readily available resources in the event of severe droughts with additional hazards to be incorporated later.
ARC is one of several tools that governments can use to eliminate delays in disaster response due to a lack of predictable funding and to limit reallocation of government resources from planned development activities in times of crisis. In advance of joining the ARC, each participating country needs to create a contingency plan identifying how ARC funds will be used to assist those affected.
ARC's capacity-building programme will not only enable governments to make informed decisions on their participation in the ARC's financial services, but also, significantly, enable meaningful, risk-informed fiscal management of natural disaster risk for African governments with enhanced national capacity to respond to these predictable disasters.
The ARC aims to provide parametric contingency funding for approved contingency plans for events of a frequency of 1:5 or greater up to an initial maximum of US$ 30 million per season.
The ARC supports national disaster risk managers in identifying realistic contingency plans maximizing the value of early and reliable funding for events greater than roughly 1:5. At less frequent but more severe risks, roughly above 1:5, contingency funding makes sense for two reasons. First, investments are unlikely to create resilience for events less frequent than 1:5 in a reasonable time-frame and, second, the potential for pooling, as shown in ARC's dynamic financial analysis, reduces cost.

Courtesy of ARC (www.africanriskcapacity.org)
Payouts. There are many different ways to define the payout from a (regional) climate insurance pool. It could be a proportional payout to all weather-related losses or the payout of 100 per cent of the losses of a percentile (e.g., 30) of the most extreme losses. In the latter case a regional analysis on the return periods of losses has to be made and the payout calibrated regionally (IIASA, 2009).
In the 2010 earthquake calamity in Haiti, the CCRIF (designed to address hurricane and earthquake risk in the Caribbean) paid out almost US$8 million within two weeks of the disaster. Experts estimate, though, that the amount could have been up to US$100 million, or a 40:1 ratio, had the government chosen that particular premium to payout ratio. In this instance, the insurance provided a rapid payout in a crisis situation when liquidity was greatly needed. This is a notable feature of CCRIF which was originally envisaged as a mechanism to assist governments by providing short-term liquidity during the "funding gap", the hiatus between the immediate flow of response goods and services after a major disaster and the launch of long-term rebuilding programmes (CCRIF 2010).

Considerations on the role of the Convention in insurance approaches to address loss and damage
This section calls attention to gaps that can be best filled through regional and international action, supported by the guidance of the Convention. It outlines regional-level and international States, but also on a regional and international scale.

Functions of a climate risk insurance facility, coordinated internationally and operationalized regionally
The functions outlined below have a transboundary nature and will therefore be particularly useful if implemented at a regional or international level, rather than in compartmentalized national contexts.
The climate risk insurance facility could have capacities that include, but are not limited to, the objectives and functions shown in the overview table below and explained subsequently: Objective Provide loss and damage potential assessments that support decision-making and facilitate management of weather-related risks.
Provide timely finance to cover loss and damage in order to reduce the financial repercussions of volatility related to extreme weather events.
Incentivize loss reduction and embed risk transfer into wider resilience building efforts.

Function
Guide and enable assessments of loss and damage potential for extreme weather events.
Operationalize climate risk insurance including finance mechanisms and other means for implementation.
Ensure policy coherence and appropriate use of risk transfer tools in a wider context of climate risk management. Possible roles of the Convention in facilitating insurance to address loss and damage AE Understanding risks of greatest concern by identifying key risks and vulnerabilities, and estimating exposure.
AE Putting a price on risks and adaptation options; helping evaluate the relative merits (e.g., by cost/benefit analysis) of specific adaptation interventions for national implementation.
4.1.2 Objective: Provide timely finance to cover loss and damage to reduce repercussions of volatility related to extreme weather events The regional risk management and transfer platforms that form the climate risk insurance facility can have a distributive function, help regions absorb and manage higher layers of financial loss and damage, and help capitalize risk management approaches at lower risk layers that are tailored to national and local contexts.
The regional platforms would help manage and limit financial losses which may be incurred from possible yet uncertain loss events.
Function: Operationalize climate risk insurance including finance mechanisms and other means of implementation.
The UNFCCC process can help fulfil this function inter alia in the following ways: AE Set up an international or a network of regional risk management and transfer platforms that cover catastrophic layers of risk. This may include seed funds for regional (and national) risk reduction and risk transfer initiatives.

Some cost figures
Estimating costs for a global coverage for developing countries is a challenging task as the (technical) premium costs are highly individual and strongly depend on the regional and international settings. Nevertheless, there are first estimates of capital costs and costs of maintaining regional risk sharing facilities.
A global extreme risk fund, possibly like the one proposed by MCII (MCII, 2008), could need US$10 billion in initial capitalization, and would be maintained at that level. Young (2009b) estimates initial capitalization needs for regionally organized risk pooling solutions at US$5-10 billion over five years, and ongoing premium support costs of US$2-5 billion per year for multiple regional risk-sharing facilities covering extreme weather risk at both national and local levels. Additional funds would be required to provide technical support alongside other adaptation initiatives and for capitalization of a global risk fund of last resort to cover the most extreme events (perhaps an additional US$10 billion).
Investment return on the latter could cover technical support in the long-term (Young, 2009b).

Accompanying activities in the emerging institutional set-up of adaptation and mitigation
The UNFCCC, through the Cancun Decisions, already achieved major advances on the issue of adaptation. Several elements that are underway towards their operationalization have to play synergetic roles for advancing a climate insurance approach.

National Adaptation Plans (NAPs)
Parties agreed to operationalize the NAP process as mandated by the Cancun Adaptation Framework. This includes a medium-to long-term strategic approach for Least Developed Countries in how to do adaptation at the national level. The developed modalities and guidelines should also be applied by other developing countries.
NAPs will be accompanied by concrete investment activities. The Cancun Adaptation Framework already gives guidance on eligible adaptation activities. Countries should consider embracing a risk layering approach and include elements of a climate insurance approach in their concrete activities.
Regarding loss and damage, there is no immediate mentioning in the NAPs decision. However, many approaches to be discussed under the loss and damage work programme (such as assessment of loss and damage and relevant decision-making tools) have also a high relevance for medium-to long-term adaptation planning.
In elaborating the work programme on loss and damage, Parties should therefore also link this with the NAPs concept and possibly include it in the review of the guidelines to be conducted by the Least Developed Expert Group.

The Green Climate Fund
In Durban, Parties succeeded in operationalizing the Green Climate Fund. The decision includes an annex on the governing instrument, which lays out the fundamental structures and procedures of the fund. Part of this is the decision to fund adaptation, which is likely to be interpreted as funding eligible activities under the Cancun Adaptation Framework Para 14. So far, loss and damage is not considered an eligible activity for funding.
However, possible loss and damage-related activities might well be eligible: This includes inter alia, impact, vulnerability and adaptation assessments, climate change-related disaster risk reduction strategies, risk assessment and management, and sharing and transfer mechanisms, enhance understanding, coordination and cooperation with regard to climate change induced displacement, strengthening data and improving climate-related research and systematic observation. In the medium-and long-term, funding of the risk transfer mechanisms for developing countries to address loss and damage should, among other international sources 13 , generally also be financed and capitalized by the Green Climate Fund. The regional facilities can be a conduit for distribution of payments, other appropriate forms of support, etc.

Adaptation Committee (AC)
In Durban, Parties operationalized the Adaptation Committee (AC) (decision 2/CP.17). The AC will be the major advising body on adaptation under the UNFCCC, extract lessons learned and recommendations to Parties, and provide general coherence.
The AC should therefore work on the general guidance on risk transfer solutions as part of the adaptation and loss and damage portfolio.
13 Some countries take the position that national funding should not compete with funding for regional purpose. Therefore, international funding sources are one option, but more discussion is needed to ensure that national and regional priorities are addressed.

Outlook
The impacts of loss and damage associated with climate-related stressors including weather extremes and long-term climatological shifts can impair socio-economic development and reinforce cycles of poverty across the globe. Building the management capacity for dealing with today's extreme climate-related events will provide the basis for dealing with both current climate variability and long-term shifts in climate patterns. This comprehensive approach will help both to smooth development pathways and cushion the expected negative impacts of loss and damage in the future.
In today's world there are challenges associated with creating strategies to address loss and damage. Faced with financial crisis, political strife, population growth and a multitude of other challenges, decision makers may be tempted to postpone considering approaches to address loss and damage related to climate change impacts. In spite of these challenges, international and national policy fora, as well as communities of policy, science and practice have many tools to help them begin to address loss and damage.
Tapping into and jump-starting the action of these different communities and processes should be an essential next step for the UNFCCC process, as the discussions on loss and damage become more mature and probably more institutionalized.
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