Insurance schemes for loss and damage: fools’ gold?

Insurance schemes are a widely supported form of finance mechanism to address climate change-induced loss and damage, and are part of the Warsaw International Mechanism for Loss and Damage. This paper reviews active insurance schemes for loss and damage by exploring existing critiques. Novel insights into the fundamental challenges that insurance schemes face are then examined, in particular in the context of common but differentiated responsibilities and respective capabilities, intergenerational equity, economic and gender inequality, and human mobility. The analysis concludes that, despite their popularity among policy makers, insurance schemes seem ill-suited to address the full range of loss and damage. Therefore, pursuing these schemes, without backstopping from international finance, might undermine the objective of responding to loss and damage in a comprehensive manner. Consequently, it may be advisable for policy makers to consider how to overcome the apparent challenges in order to ‘insure the uninsurable’.Key policy insights Existing insurance schemes are ill-suited to fully respond to climate change loss and damage, given the increased frequency and severity of sudden onset events, slow onset events, and non-economic losses and damages.Insurance schemes fail to align with principles enshrined in the climate change regime, in particular the principle of common but differentiated responsibilities and respective capabilities (CBDR-RC) and intergenerational equity.Insurance products do not take economic inequality or gender considerations into account and loss and damage stemming from human mobility does not lend itself to insurance solutions as currently conceived, in certain circumstances.If insurance continues to be pursued as a response to loss and damage, it requires a major overhaul with innovative approaches.Policy makers must consider sourcing new and additional finance, reflecting the principle of CBDR-RC.