Our Approach
Agricultural insurance is not a stand-alone solution. As such, it needs to build on existing measures and frameworks. As a result, the Integrated Climate Risk Management (ICRM) approach is a conceptual framework developed by the ACRI+ unit within the project Promoting Integrated Approaches for Climate Risk Management and Transfer. The project is funded by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) and works with government officials in Barbados, China, Ghana and Morocco in different sectors such as renewable energy, agriculture, urban resilience and small and medium enterprises. The ICRM approach is designed to insert risk transfer mechanisms into the framework (BMZ, 2015) of the German Federal Ministry for Economic Cooperation and Development (BMZ), which follows the classic PPRR (prevent, prepare, respond and recover) approach.
Figure 1 shows our adjusted BMZ framework and how it incorporates residual risk and the role of insurance in all phases. The outer circle shows the five phases of the ICRM approach. The light-blue circle offers additional details about these phases. Resilience in the centre indicates cross-cutting activities and interlinkages in all phases to create a systemic progress towards CCA goals and DRM targets over time (Le Quesne, and others, 2017).
The pre-disaster and post-disaster financing in the figure are of particular significance in the ICRM approach. Examples of pre-disaster financing (sometimes called ex ante financing) are accumulated reserves, savings, contingent credit and risk transfer approaches such as insurance, while examples of post-disaster financing (sometimes referred to as ex post financing) are budget re-allocations, loan conversions and borrowing (Le Quesne, and others, 2017). Without post-disaster financing, it can be difficult for people and governments to recover from a disaster. In addition, establishing pre-disaster financing schemes supports disaster risk reduction in the ‘prevention’ phase as well as helps to manage residual risk. However, it is important to recognize that the social, economic, financial, physical, institutional/political and environmental processes in a country evolve over time. Hence, our ICRM approach is a dynamic process presented as a cycle.
To assist governments in increasing their financial resilience against extreme weather events through cost-effective financial protection strategies, ACRI+ has developed Integrating Insurance into Climate Risk Management: Tools and Guiding Questions for the Agricultural Sector. It uses the ICRM approach to present comprehensive climate risk management for the agricultural sector and its value chain. It provides an opportunity for reducing and addressing climate risks, which in turn leads to long-term investments in agricultural production and thus improves food security. Implementing the ICRM approach lessens the impacts of extreme weather events on production losses in the agricultural sector, and reduces governments’ expenditure on food imports and subsidies to agriculture-dependent populations. It enables governments and other stakeholders to build capacity tailored to local risk profiles, using insurance as an entry point. This document aims to enhance developing countries’ resilience efforts by leveraging the benefits of insurance in the agricultural sector and along its value chain. As the phases and components of the ICRM approach do not change, the document can be adapted to different sectors. Hence, this publication would be of value to risk managers in other sectors, too.