As we step into 2023, let’s take a moment to reflect on the work of the UN Capital Development Fund (UNCDF) in the Pacific over the last two years. The Programme’s forbearer, the UNCDF-led Pacific Financial Inclusion Programme (or popularly PFIP), ended in 2020 after a successful 12-year implementation. Under the dark cloud of the Covid-19 pandemic, two successor programmes- the Pacific Insurance and Climate Adaptation Programme (PICAP) and the Pacific Digital Economy Programme (PDEP) - were launched in 2021. Both have completed their inception phase of two years and are set for regional expansion.

In this article, I will focus on UNCDFs flagship climate disaster risk financing and insurance initiative, PICAP, which in many ways is a pioneer not only in the Pacific region, but globally as well.

The impact of climate change and high levels of exposure to natural hazards has been a persistent development challenge for Pacific Small Island Developing States (PSIDS) for decades. With limited technical and financial capacity, these climate vulnerable nations bear the brunt of a raging global problem for which they are least responsible. The increasing frequency and intensity of extreme weather events have resulted in significant economic impacts on PSIDS, upsetting development gains of several decades.

Who pays for the economic price for the ‘loss and damages’ suffered by the climate vulnerable nations? And what is the adequate price? This has been a topic of global debate for several years now and was a prominent issue at COP27 in Egypt last year, where a breakthrough agreement on a loss and damage fund was passed by member states. The inadequate flow of climate finance has meant that PSIDS continue to struggle and grapple with a challenge that exposes climate-vulnerable populations to the real and insidious threat of being pushed deeper into poverty.

The Pacific Insurance and Climate Adaptation Programme - jointly administered by UNCDF, the UN University Institute for Environment and Human Security (UNU-EHS) and the UN Development Programme (UNDP) -- aims to address these challenges using innovative financial and insurance instruments. The objective of the Programme is to build the financial preparedness and resilience of low-income households against climate hazards from the ground up in PSIDS. It has a specific focus on the agriculture, fisheries, tourism and retail sectors and cross-cutting focus on women, youth, people with disabilities and MSMEs.

This is because the impact of climate disasters is most acutely felt at the micro and meso levels. When a cyclone or flood hits the region, it is the incomes, livelihoods and financial stability of farmers, fishers, small business owners and other informal sector groups that suffer the most. Then comes the knock-on effect on the nation’s economy as Governments usually re-align budgets, if they can, from other development projects to support disaster relief.

Climate and disaster risk insurance solutions have the potential to fill this gap and provide vulnerable communities with rapid funds to cope with the losses. PICAP has developed and deployed the region’s first parametric micro-insurance products that provide financial cover against heavy wind and extreme rainfall related events.

The programme delivered on all its targets during the two-year inception phase, prominent among them being the introduction, piloting and scaling of the first ever market-based parametric microinsurance in the Pacific. Fiji, Vanuatu and Tonga are the first three countries covered by the programme, with Samoa, Solomon Islands, Kiribati, PNG and Timor-Leste to follow in the expansion phase set to commence from 2023. The expansion will facilitate the cross-fertilization of knowledge and expertise among Pacific countries. The detailed results from the inception phase will be shared shortly.

The insurance product is pegged on a digital onboarding platform and customer database software known as iOnboard, developed by PICAP and insurtech partner, IT Galax. This innovative piece of technology will not only streamline the signing up process for parametric insurance products, but also catalyse digitisation in the region’s insurance sectors.

Since launch, the Programme has formalised strategic partnership with sister UN agencies, such as the World Food Programme, UN Women, and the UN Office for Disaster Risk Reduction, to strengthen both reach and impact. The unique expertise of our partners will be a vital part of our work in 2023 as we aim to provide insurance coverage to more and more vulnerable communities.

2023 and beyond looks promising and exciting for PICAP. There are several frontier ideas that are being considered for experimentation, including the use of Artificial Intelligence driven claims management by insurers, insurance linked to anticipatory action, further work on climate disaster risk financing linked to social protection systems and development of innovative products for specific segments and sectors. PICAP will continue to support the disaster risk financing technical working group under the Pacific Resilience Partnership. The aim of the working group is to facilitate a concerted approach to enabling the policy environment in the region for climate disaster risk financing. The programme is also in discussions with the Pacific Catastrophe Risk Insurance Company (PCRIC) for exploring opportunities for collaboration and complimentary approaches at the macro, meso and micro levels.

The Programme team acknowledges the support of all partners, without whose support these milestones would not have been achieved:

• The Governments of New Zealand, Australia, Luxembourg and India
• The Governments and Ministries of Finance/Economies of Fiji, Vanuatu and Tonga
• The Fijian Ministry of Women, Children and Poverty Alleviation
• The National Disaster Management offices and the meteorological authorities
• The Pacific Islands Forum
• FijiCare Insurance, Sun Insurance and Tower Insurance
• Howden Group
• Tractable
• Pacific Disability Forum
• The World Food Programme
• UN Office for Disaster Risk Reduction
• UN Women
• Fiji Rice Limited
• Tailevu Dairy Farmers Co-op Association Ltd
• Cane-Farmers Co-operative Savings & Loans Association Limited
• Copra Millers of Fiji
• Sugarcane Growers Council
• Fiji Crop and Livestock Council
• Consumer Council of Fiji
• IT Galax
• Reserve Bank of Fiji and Vanuatu and the National Reserve Bank of Tonga
• Tonga Development Bank
• PHAMA Plus
• FEMLink Pacific
• Weather Risk Management Services
• Munich Climate Insurance Initiative
• SCOR SE (reinsurance)
• InsuResilience Global Partnership