Climate risk management, insurance and financing

On the micro level, WFP supports households vulnerable to climate-related shocks to manage climate risks and reduce vulnerabilities using an integrated set of tools that include access to microinsurance, risk reduction and financial services. Through WFP’s flagship approach for climate risk management, the R4 Rural Resilience Initiative, households can access insurance by participating in risk reduction activities, such as engaging in nature-based solutions that restore ecosystems or adopting improved agricultural practices. Microinsurance supports households with a protective safety net to cope with climatic shocks through timely payouts and stimulates investment in more resilient livelihoods, with insurance acting as collateral for increasing access to credit and financial services.

On the macro level, WFP is a leader in promoting sovereign insurance products that can offer rapid finance to affected communities in the event of major disaster. By connecting climate and disaster risk financing instruments with social protection systems at regional or local levels, these schemes can better reach and target the needs of vulnerable people in response to climate shocks. In 2021, through its macro insurance programme, Africa Risk Capacity (ARC) Replica, WFP has supported the governments of Burkina Faso, The Gambia, Mali, Mauritania and Zimbabwe with macro-level climate risk financing instruments, protecting vulnerable people and communities with pre-arranged funding for rapid responses. This year also saw the approach begin to expand into two new countries, Madagascar and Mozambique.

To appropriately capture the different levels of risks, WFP adopts a risk-layering approach, combining different risk financing tools according to the frequency and severity of shocks. At the household level WFP is developing the Savings and Insurance Layering (SAIL) approach to integrate microinsurance with village savings mechanisms so familes can better manage catastrophic shocks through timely insurance payouts, and rely on savings for more frequent and less severe shocks [SD1].  SAIL will focus on strengthening farmers’ ability and willingness to save, partnerships with financial institutions, and WFP’s methodologies and systems that enable integrated climate risk management.

On the macro level, through ARC Replica Plus, WFP will integrate insurance protection for less frequent, more catastrophic risks with complementary risk financing instruments, including forecast-based anticipatory actions and contingency finance, that trigger at more frequent but lower severity hazard levels.