From increased incidence of heat waves, freshwater shortage, food insecurity, melting ice caps, to extinction of plant and animals species, a recent report by the Intergovernmental Panel on Climate Change (IPCC) predicts an apocalyptic future by the end of this century if the current indiscriminate production of global greenhouse gas emissions continues.
The report also indicates that despite contributing the least amount of greenhouse gas emissions, Africa will be the most exposed to climate change impact. On average, the continent experiences one to three heat waves per year, however, this number could double by 2050.
Additionally, highly populated cities like Lagos, Nigeria will be more vulnerable to heat stress, possibly exposing 350 million people to potentially deadly heat by the middle of the century.
Other risks for the African continent include increased poverty particularly among rural and pastoralist communities, undernutrition with lifelong impact on health, increased risk of vector-borne and water-borne diseases, increased human rights violations, conflict and political instability due to migration.
In Kenya, for example, it has become commonplace for pastoralist communities in arid and semi-arid regions to face starvation and even death due to severe and increasingly frequent droughts that depletes pastures and water sources for both livestock and human consumption.
In some areas in the Nyanza and Western regions such as Budalangi and the Kano Plains, communities’ livelihoods are similarly threatened by floods, whose increasing frequency has been triggered by climate change.
According to Anthony Wainaina, the deputy director of public health, higher incidents of malaria, dengue fever, cholera and typhoid have been reported in regions experiencing climate-induced rising temperatures.
Although the just concluded world climate change summit (COP 26) in Glasgow, Scotland attended by world leaders, including President Uhuru Kenyatta, unanimously resolved to limit global temperature increase to 1.5°C above 1990 levels by 2100, immediate action on these resolutions on a global scale remains highly uncertain. The consequences of climate change will therefore likely remain for the foreseeable future.
While global economies and initiatives are committed to mitigating the current and emerging climate change impact by limiting human-induced global warming from CO2 (Carbon Dioxide) and other greenhouse gas emissions, the magnitude of climate-related disasters require an all-hands-on-deck approach to be able to cope with and manage climate risks.
This calls for a coordinated strategic response from the finance and insurance industry in building resilience amid such ongoing crises.
The finance and insurance industry has the responsibility to provide appropriate products and services to help mitigate climate change-induced economic risks, support entry into the low-carbon economy and the realisation of the Paris Agreement of 2015.
Encouragingly, the industry has, in fact, been alert to these new potential risks and is already experimenting with new innovative products in readiness for a world that must contend with a changing climate.
For example, in Northern Kenya, an Index-based Livestock Insurance (IBLI) pilot is currently underway where pastoralist communities now insure their animals against risks posed by drought. Some have been compensated following several bouts of severe drought that wiped out thousands of animals.
Another insurance product being piloted in various counties is the Crop Index Insurance Programme (CIIP) which combines the implementation of two technological innovations in climate risk insurance: soil moisture index insurance and a picture-based loss verification tool.
Growing demand for IBLI and CIIP in Kenya shows the finance and insurance sectors have a crucial role to play in enhancing resilience in the largely crop-growing and pastoralist communities that drive Kenya’s agriculture, which is the backbone of the economy.
While various measures are being implemented, recourse to compensation when climate-related disaster strikes is still underdeveloped locally as compared to developed nations where properties destroyed as a result of natural disasters such as wildfires and floods is catered for via compensation.
The local insurance industry can therefore not be left behind. It must introduce responsive products.
The products should also be categorised at individual, community or cooperative levels. These can be structured in such as that those purchasing the products enjoy post-disaster financial support. At the national level, compensation would be through a multinational risk pool.
This way, the industry will create an environment where those whose livelihoods depend on climate-sensitive sectors will grow their endeavours in the knowledge that compensation is assured in the event of climate-induced catastrophes.