Climate risk management, insurance and financing
- 2.7 million
- people protected in 2021 with climate risk insurance products developed and supported by WFP in 18 countries
- 4 million
- people protected by climate risk insurance by 2026
- 2.5 million
- US$ saved by participants of financial inclusion programmes
A scale-up of climate and disaster risk financing instruments is urgently needed to enable governments and the humanitarian sector to strengthen safety nets for the most vulnerable and provide more timely financing and assistance. Compounding shocks, such as extreme weather events, conflicts, financial crises and pandemics, are increasingly challenging governments’ abilities to manage climate risks, limiting their ability to effectively respond to climate extremes.
Smallholder farmers, pastoralists, small and micro entrepreneurs across the world are highly vulnerable to climate-related risks, such as droughts, floods and storms. They also have very limited access to the risk financing tools and services that can provide protection from the resulting financial losses.
In the face of these challenges, the World Food Programme (WFP) helps communities and governments to better prepare for, respond to and recover from climate-related shocks through inclusive risk financing and insurance solutions.
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.
Forecast-based Financing (FbF)
Forecast-based Financing enables anticipatory actions for disaster mitigation at the community and government level using credible seasonal and weather forecasts. With climate change acting as a risk multiplier, WFP is strengthening this work with investments in Forecast-based Financing and anticipatory action across Asia, Africa and Latin America.
R4 Rural Resilience Initiative
WFP and Oxfam America’s R4 Rural Resilience Initiative is a comprehensive risk management approach that helps vulnerable rural households increase their food and income security in the face of increasing climate risks.
Sovereign Climate Risk Financing and Insurance
WFP is a leader in promoting sovereign insurance products that can offer rapid finance to affected communities in the event of major disaster. Through its macro insurance programme, Africa Risk Capacity (ARC) Replica, WFP protects vulnerable people and communities with pre-arranged funding for rapid response.
The Weather Risk Management Facility
A joint initiative by WFP and IFAD, Weather Risk Management Facility (WRMF) aims to reduce smallholders’ vulnerability to weather and other risks that limit agricultural production and food security.