Innovative Insurance may Assist with Extreme Weather Losses

Our studies so far have revealed that insurance plays a critical role as the risk management default for extreme weather events affecting strata and community title complexes.  

But the experiences of many of those complexes in far north Queensland over the last 18 months also reveals that conventional insurance products and market forces can undermine that protection.  Plus, traditional insurance protections do not encourage or facilitate climate change adaptation.

So new thinking and ideas may be necessary to better deal with the climate change effects of extreme weather events for strata and community title complexes.

Complexitas is an Australian business that works with corporations and government in climate change risk management around the world to help reduce risks by focusing on risk identification, resilience and adaptivity.  In a recent presentation called Can Adaptation and Insurance be Sustainable Partners to Combat X-Events, Compexitas looked at whether the impacts of extreme weather events (a class of X- Events) can be diminished by use of insurance that does not rely on the proof of loss.

This involves something called index-based insurance for highly vulnerable communities and organisations where insurance cover and payouts are not based on proving loss but, rather, the occurrence of weather disasters.  

For instance, in Peru, where a defined group of weather–sensitive farming communities are now offered insurance that is not based on proving loss due to flooding rains but are given payouts at the start of an anticipated disaster season (based on climate mode information and predictability). They then have money to buy emergency seeds and to recover from any event that occurs in the anticipated extreme summer season.

This kind of insurance minimises the impacts of insurance sector failures that are usually caused by market (asset) problems, moral hazard and adverse selection and the inability to respond to and anticipate major shifts in climate and client behaviour.

It's an innovative idea that might be worth considering.  You can find out more by looking at the presentation slides here and reading text of the presentation here.