Source: insurancebusinessmag.com

A study from the University of Cambridge Institute for Sustainability Leadership (CISL), supported by risk analysis from the global insurance group Howden, indicates that the smallest and most vulnerable nations could lose more than their entire GDP due to extreme climate events in the coming year. These risks, primarily faced by Small Island Developing States (SIDS) and other susceptible countries, point to the urgent need for effective financial solutions.

The research quantifies the losses that small, climate-vulnerable countries in regions like the Pacific, Caribbean, and Indian Ocean are currently facing. Predicted losses range from 50% to over 100% of annual GDP due to severe weather events. These losses could increase by approximately 0.5% per year, reaching 10-15% by 2050 solely due to climate change.

Despite these escalating risks, the study shows financial risks faced by these countries could be significantly reduced through the use of insurance and capital markets. This would be achieved through a mechanism known as “Umbrella Stop-Loss Protection.” An estimated $1 billion annual premiums could protect the world’s 30 smallest and most climate-vulnerable countries against losing more than 10% of their GDP from climate shocks.

Expanding the scope, the analysis outlines a strategy for loss and damage (L&D) implementation across 100 climate-vulnerable, less developed countries. An annual pure premium of $10 million per country, supported by donors, would translate to approximately $25 billion in guaranteed financial protection for 100 countries, ensuring significant pre-arranged financial support for their most critical needs. Such L&D solution provides immediate and sustained financial protection through 2050, offering these countries the financial stability needed for long-term planning, investment attraction, and decisions on resilient development and climate adaptation.

“The groundbreaking research by CISL has provided an action plan based on a bedrock of open science, rigorous analysis, shared alignment, and collective purpose”, said Rowan Douglas, climate, risk and resilience CEO at Howden. “Risk sharing systems empower hard won loss and damage funds to provide structural financial security to the widest range of vulnerable countries. We can mobilize existing expertise, institutions, and partnerships to put this essential protection in place quickly.”