Category Archives: Resources

Authors: Kirsty Hamilton, Low Carbon Finance Group, Chatham House and Ethan Zindler, Bloomberg New Energy Finance (BNEF)

Published by: BNEF, Chatham House, UNEP

Download here

What it covers:

  • How finance generally works
  • What the different parts of the finance sector do
  • What issues financiers consider when investing, including the role of policy and regulation
  • Capital markets and where ‘green bonds’ fit in
  • The variables affecting finance decisions
  • Energy efficiency, and an update on issues relating to emerging or developing-country markets; A practical focus on ‘climate finance’, especially finance-sector-led initiatives that are accelerating actions at both the low- and high-carbon end of the spectrum.

kirstyhamiltonpic-ch

This is the most recent update of a guide first published in 2010. Lead author Kirsty Hamilton – Associate Fellow, Low Carbon Finance at Chatham House –  says that the aim of the guide is to provide a tool that not only allows policymakers to better understand and speak the language of finance, but one that also enables them to get a handle on the mindset of financiers and how they make their decisions.

The product of more than a decade of experience at the interface between policy and finance, the guide tries to bridge what is all too often a gap between policy and the financial flows that policy changes are meant to facilitate but can in fact frustrate.

“There are two tiers of policy,” say Hamilton.”Often, policy makers believe that as long as they switch the general direction of travel in ways they think are favourable to finance – for example setting goals for clean energy usage – they have done their job. But when finance looks to flow through the mechanisms or channels they have created, there can be blockages that occur because the “nitty gritty” practical details may not work for one reason or another, for example from a risk/return perspective. Detailed engagement on policies with financiers – in advance, and in ways to which they can and will be expected to respond  –  is therefore critical”.

In fact, Hamilton urges systematic dialogue between policy makers and financiers, and recommends that alongside policy development, governments set up platforms for dialogue on factual issues with the finance sector.  This could take the form, she suggests, of a regular forum  that brings together financiers relevant to a particular country and its clean energy needs, both local and international.  “This is the best way’” she says, “to make sure that policy changes are made at the right level of granularity, and communicated in ways that will be clearly understood.  The clarity emerging from such dialogue will also have the vital effect of encouraging investor confidence.”

The way that Hamilton sees integrating investment into climate, energy and  infrastructure planning is illustrated in this finance guide graphic.


Author biography

Kirsty Hamilton has led work on policy conditions to attract capital for the last 12 years, working with leading finance practitioners investing in renewable and low carbon energy and senior policy counterparts, as an Associate Fellow at Chatham House. This has brought a evidence-base on ‘investment grade’ policy from across UK, EU and emerging markets. From she was Policy Head at the Low Carbon Finance Group – a cross finance sector group of senior practitioners, led by financiers 2010-2015, to help policymakers better understand investment conditions, with Electricity Market Reform a core focus. She continues to work with a Low Carbon Finance network of international financiers at Chatham House. In 2015-2016 she was a Specialist Advisor to a UK Parliamentary Committee’s Inquiry into Investor Confidence (2015-2016) in her consulting capacity.

Kirsty has 26 years’ experience in international climate and energy policy as an Observer at the UN climate change negotiations, with a number of invited positions including a former member of World Economic Forum’s Global Council on Sustainable Energy and a former Advisor to UNEP’s Finance Initiative. She has been an expert reviewer and contributing author to the IPCC.

Resource: Protecting the poor: A microinsurance compendium (2 volumes)

Publisher:  International Labour Organisation (ILO)

Type of Resource:  Paid.  Available in Portuguese, Spanish and French as well as English

Website


 

“Protecting the Poor” is a comprehensive compendium on micro-insurance published by the International Labour Organisation and Munich Re Foundation. The two-volumes of the compendium bring together the latest thinking of leading academics, actuaries, and insurance and development professionals in the microinsurance field.  

The first volume of the compendium, published in 2006, covers product design, marketing, premium collection and governance, along with different models for delivery such as the community-based approach, insurance companies owned by networks of savings and credit cooperatives and microfinance institutions.

The second volume, published in 2012,  covers more recent innovations to meet the challenges of providing insurance to low-income populations, from new products and delivery channels to consumer education tools, and also examines changes in regulations, providers and schemes.

This volume also provides a specific section on climate change, covering the impact of climate change, microinsurance and weather events, operational challenges and solutions and the role of key stakeholders

Craig Churchill

Editor Craig Churchill had a background in microfinance before getting the invitation to apply skills and techniques learned there to creating insurance products for low-income populations.  

As well as the two books, the ILO has built a catalogue of training materials, which are designed to build the capacity of local insurance industries and made available on a bespoke basis, working through insurance institutes in each country. (Training packages are dependent on funding.)

Churchill says that, as far as Paris implementation is concerned, “it’s really important for governments and policy makers to see the insurance industry as a potential ally, and to see how they can leverage the capacity of the industry to respond to the vulnerabilities that countries face due to climate change.” The problem, Churchill says, is that in many places the local insurance industry doesn’t have this capacity, or the products available, “so what’s needed is for these companies to be strengthened so that they can help governments to manage their exposure to risks.”

Churchill notes that often donor agencies looking to help develop local industries focus too early on difficult risks like natural disaster coverage, when what is really needed is to cater for the ‘bread and butter’ needs of the population and then build on lessons learned there, in terms of products and distribution, to add on more complex risks.

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Another key lesson that Churchill points to from his decade or more of experience is that ‘base of pyramid’ insurance for natural disasters needs to be done on a portfolio basis.  “Selling, say, agriculture insurance on a farmer-by-farmer basis just doesn’t make any sense,” he says, “either from a business case perspective or a moral perspective.”  Instead, “insurance needs to be approached on a portfolio basis, for example embedded in products people purchase, so anyone who takes a micro loan or buys fertiliser or phone minutes has a relevant insurance built in.”

“Obviously,” Churchill says, “there are disadvantages to this approach if people aren’t made properly aware that they have the cover and what it entails, but there are ways of overcoming those issues so the advantages outweighs the disadvantages of a portfolio approach.”

This is the only basis on which he believes that microinsurance for natural disasters is ultimately scaleable, and the willingness to adopt a portfolio approach is the reason, Churchill says, it has taken off in India, where the government supports programmes that cover many millions of people with crop and other protections.  

While there is a cost to governments adopting this approach, it is one that can be budgeted for, while having insurance creates both certainty and enormous savings compared to post-facto relief and rehabilitation efforts. Churchill also notes that it is the lack of volume products that is keeping commercial re-insurers away from micro markets.  “There are a lot of pilots, often donor funded, but it only makes sense for the reinsurer if governments or major distribution channels pick it up, for example by embedding it into farmer loans and making it effectively a member or user benefit.”  He points out that even in developed countries many agricultural insurances are subsidised.

Churchill says that in his view the best way forward for the microinsurance markets is for governments to develop their own capacity, ideally by creating insurance expertise within departments that are responsible for managing risks of one kind or another, so that “they have people that understand the insurance world and can partner with it to create the products they and their peoples need, especially the vulnerable populations.” 

As well as it’s capacity building work, the ILO is also behind an Impact Insurance Facility, which has the objectives of stimulating innovation, unlocking capacity, and accelerating the development of inclusive insurance markets in selected countries.

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