November 17, 2022

“Loss and Damage” Discussions at COP27

Negotiations frame the role of climate risk transfer in the face of severe weather events

Madeline McFarland, Climate Resilience Analyst

“Loss and damage” due to climate change is a focus of the 27th Conference of the Parties of the United Framework Convention Climate Change, known as COP27.

“Loss and damage” refer to the financial losses associated with climate change-fueled extreme weather events. Extreme weather events have increased in frequency and cost in recent years, from extreme heat waves to droughts to storms and flooding across the world. However, the impact of severe weather disproportionately affects developing countries. These countries are advocating a new “loss and damage” fund to help mitigate the impact of climate change.

“Mia Mottley, the prime minister of Barbados, addressing the United Nations climate summit on Tuesday. ‘We have a moral and just cause,’ she said. Credit: Ahmad Gharabli/Agence France-Presse — Getty Images.” – The New York Times

Scotland was the first developed nation to commit funds to “loss and damage” at the UN climate summit last year. Countries like Ireland, Austria, Belgium, and Denmark have now also pledged millions for climate-vulnerable countries.

Germany, meanwhile, has pledged $170 million to “a new program that would offer vulnerable nations a form of insurance in the event of climate emergencies,” according to the New York Times.

COP27’s conversations and actions like Germany’s have put a spotlight on the role of risk management like the insurance program supported by Germany in combatting climate change. While reforms and innovations shift countries away from contributing to climate change with pollution, extreme weather events require financial planning and risk transfer to address the damage that is already occurring.

Earlier this year, Demex reported on extreme weather conditions that spurred increased negotiation at COP27, like extreme heat across the world. In India, temperatures surpassed 110°F.

“Homeless people sleep in the shade of an highway overpass on a hot day in New Delhi, last month. Credit: Manish Swarup/Associated Press” – The New York Times

Traditional insurance options for severe weather focus on the damages from catastrophic events like hurricanes but ignore less severe but higher frequency extreme weather events like heat waves, droughts, and storms. Since 1980, these non-catastrophic extreme weather events are five times more frequent and impactful, driven by climate change. Businesses are more exposed than ever to financial risks caused by this extreme weather volatility. However, with limited risk management available, businesses cannot fully understand and protect against their unique risks on their own.

Demex has created a set of product solutions that protect policyholders against increasingly volatile high-frequency weather to achieve budgeting confidence and stability. We model the unique relationship between extreme weather and customers’ first-party financial data to quantify their specific climate risk exposures. We then transfer that risk through our Trusted Risk Capacity Network. Demex has forged partnerships with intermediaries and risk capacity providers to deliver customized insurance programs that enable businesses to build protection against climate change.

As the UN and world leaders continue to tackle the near and long-term consequences of climate change, strategies such as extreme weather insurance can play a crucial role in adaptation. Solutions like Demex’s allow for holistic climate risk transfer in the face of increasingly common and expensive volatile or extreme weather.