Climate Risk Transfer
Insurance and parametric instruments for rapid disaster response
Your Progress
Section 3 of 5Shifting Risk from Vulnerable to Capable
After a disaster, speed matters. Waiting months for aid means livelihoods destroyed, migrations triggered, development reversed. Insurance provides immediate liquidity when it's needed most.
Parametric vs. Traditional Insurance
- Pay for verified losses
- Requires damage assessment
- 3-12 months to payout
- High admin costs
- Pay when trigger reached (e.g., rainfall < 200mm)
- No damage assessment needed
- Payout in days
- Low overhead
Climate Risk Insurance Impact Simulator
Compare outcomes with and without parametric insurance
Agricultural Drought
Kenya smallholder farmers
Potential Event
Rainfall drops 40% below seasonal average
Impact: Crop failure for 50,000 farmers
Insurance Option
Choose Your Strategy
Risk Transfer Mechanisms in Practice
🌾Micro-Insurance for Farmers
Example: Kenya's index-based livestock insurance pays when vegetation index drops below threshold—indicating drought conditions.
🌀Sovereign Catastrophe Risk Pool
Example: Caribbean Catastrophe Risk Insurance Facility (CCRIF) covers 22 countries against hurricanes and earthquakes.
⚠️ Basis Risk Challenge
Parametric insurance has "basis risk"—the trigger might not perfectly match actual losses. A farmer could suffer drought damage but rainfall stays just above the threshold (no payout). Or the trigger activates but localized damage is minimal (payout without loss). Careful index design minimizes but doesn't eliminate this mismatch.