Climate Justice: Inverted Global Shield Insurance the Climate Loss & Damages

This policy brief by the Africa Policy Research Institute examines the Global Shield (GS) initiative and the broader climate insurance landscape in Africa. The authors argue that while insurance can provide rapid disaster response, it is an insufficient tool for addressing the diverse, slow-onset impacts of climate change and often fails to provide equitable protection due to high premiums, technical complexities, and the risk of 'basis risk' where payouts are not triggered despite actual losses.

• The Global Shield (GS) initiative, spearheaded by Germany and launched in partnership with V20 countries, aims to provide "pre-arranged" finance that can be disbursed quickly following natural disasters. It focuses on developing insurance instruments at household, business, and national levels, with initial funding including EUR 170 million from Germany and smaller contributions from Canada, Denmark, France, and Ireland.
• The Global Shield differs from the Loss and Damage Fund (LDF) in its funding model and scale. While the LDF is intended to cover mounting costs for developing countries—with V20 estimates of losses already exceeding USD half a trillion—the GS relies on relatively limited donor commitments and generally requires beneficiaries to pay a significant portion of their own protection costs.
• Parametric or 'index' insurance, widely used in Africa, triggers fixed payouts based on predefined parameters (like rainfall levels) rather than individual damage assessments. This approach is intended to reduce monitoring costs and fraud but introduces 'basis risk,' where payouts are not triggered despite severe losses. A notable example occurred in Malawi in 2016, where a lethal drought failed to trigger an African Risk Capacity (ARC) payout because the model used the wrong reference crop for maize.
• Climate insurance initiatives in Africa often struggle with low enrolment and sustainability because the most vulnerable populations and governments cannot afford the premiums. This has led to a reliance on donor subsidies, such as the 'ARC Replica' coverage, where UN agencies and NGOs purchase policies for countries like Burkina Faso, Mali, Mauritania, Senegal, the Gambia, and Zimbabwe.
• Insurance is poorly suited for 'slow-onset' climate vulnerabilities, such as heat stress for workers, the gradual erosion of cocoa production in the West African 'cocoa belt' (from Cameroon to Sierra Leone), and intensified conflicts over water access. These issues require infrastructure improvements and social protection rather than disaster-focused insurance.
• The technical nature of climate insurance often excludes African communities and governments from design and management. The systems rely on complex actuarial models and software, such as the Africa Risk View (ARV), which are often owned and licensed by external entities, reinforcing a technocratic and sometimes paternalistic approach to risk management.
• Parametric insurance schemes can create a stream of rents for European financial institutions and reinsurers. For example, the ARC pays a substantial portion of its premium income to reinsurers, but except for 2014, claims have rarely met the threshold to trigger reinsurance payouts, meaning donor and government funds are effectively transferred to metropolitan finance capital.

APA

Bernards, N., & Mbungu, G. (2024). Climate Justice: Inverted Global Shield Insurance the Climate Loss & Damages. Africa Policy Research Institute. https://afripoli.org/climate-justice-inverted-global-shield-insurance-the-climate-loss-damages

Chicago

Bernards, Nick, and Grace Mbungu. Climate Justice: Inverted Global Shield Insurance the Climate Loss & Damages. Africa Policy Research Institute, 2024. https://afripoli.org/climate-justice-inverted-global-shield-insurance-the-climate-loss-damages.

Wikipedia

{{cite report |last1=Bernards |first1=Nick |last2=Mbungu |first2=Grace |title=Climate Justice: Inverted Global Shield Insurance the Climate Loss & Damages |publisher=Africa Policy Research Institute |date=19 February 2024 |url=https://afripoli.org/climate-justice-inverted-global-shield-insurance-the-climate-loss-damages |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{bernards2024climate, author = {Bernards, Nick and Mbungu, Grace}, title = {{Climate Justice: Inverted Global Shield Insurance the Climate Loss \& Damages}}, institution = {Africa Policy Research Institute}, year = {2024}, month = feb, url = {https://afripoli.org/climate-justice-inverted-global-shield-insurance-the-climate-loss-damages}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }