Insuring Resilience: How Parametric Solutions are Transforming Climate Adaptation in the Pacific

January 30, 2025
a banana tree

Thanks to PICAP's success, Fiji is ready to scale parametric insurance to a larger audience.

Photo: UNDP

Each November, Pacific communities brace for the annual cyclone season, a six-month period that tests the region’s disaster risk reduction, mitigation, and adaptation measures. For most Pacific Islanders, this season is fraught with anxiety—cyclones and floods are relentless reminders of a changing climate, and the stark reality they are living in.

Ironically, those least responsible for global emissions face its harshest consequences, with extreme weather bringing with it the potential to thrust entire communities into poverty and stretch the already debt-ridden government resources to the limit. Yet, this is also the season when the Pacific’s renowned resilience shines the brightest.

Far from being passive bystanders, Pacific Islanders are innovating in the face of climate induced disasters at home, while at the same time demanding urgent global action(link is external) at platforms like COP29. Resilience, however, has its limits.

The region is no stranger to catastrophic tropical cyclones. In 2016, Category-5 Tropical Cyclone Winston(link is external) affected 540,000  people in Fiji (62 percent of the population), claimed 44 lives, and caused US$1.4 billion in damages. Similarly, Tropical Cyclone Harold(link is external) in April 2020 affected more than 300,000 people across Fiji, Tonga, and the Solomon Islands, leaving many without basic necessities like food, water, and shelter.

2023 was an acutely difficult year for Vanuatu. Three severe tropical cyclones(link is external) struck the country within months of each other, bringing with them the usual combination of destruction and hardship.  

While the devastation is a familiar story, a glaring gap has persisted in the aftermath of these disasters: the lack of quick, reliable disaster risk financing, specifically appropriate pre-arranged financing like insurance to address or minimize loss and damage.  

After TC Winston, the absence of mechanisms, like parametric insurance, to support recovery and reduce Fiji’s financial vulnerability was identified(link is external) as a missed opportunity and a major gap in the response.

Recognising this gap, the UN Development Programme (UNDP), UN Capital Development Fund (UNCDF) and the United Nations University Institute for Environment and Human Security (UNU-EHS) launched the Pacific Insurance and Climate Adaptation Programme (PICAP) in December 2020. The initiative is pioneering innovative and locally-led climate risk insurance solutions, including parametric insurance, tailored to the unique challenges of Pacific Island countries.

Fast Relief When It Matters Most

Unlike traditional insurance, parametric insurance provides payouts based on pre-agreed triggers, such as specific wind speeds or rainfall levels. There is no need for lengthy on-site loss verification to access the payment, if the triggers are met. This ensures that funds reach beneficiaries in a timely fashion which allows them to start rebuilding faster. 

The impact of this innovation is already evident. In January 2023, prolonged heavy rainfall triggered a parametric insurance payout(link is external) in Fiji's Western Division, a critical hub for agriculture and tourism.

Despite the flooding, the government did not declare the event a natural disaster under the requirements of the National Disaster Management Act(link is external). For the 535 insured beneficiaries, parametric insurance was the only source of immediate assistance.

Fishers, like Faizul Ali(link is external), and farmers, such as Kalesi Ledua and Manoa Kuruloa(link is external), received payments within two weeks after verified meteorological data provided by the Fiji Meteorological Office and independently monitored by Weather Risk Management Services (WRMS) in India was received. 

a house with a lawn in front of a building

The Pacific Insurance and Climate Adaptation Fund (PICAP) was launched to respond to the growing need for climate disaster risk insurance solutions.

Photo: UNDP

Partnerships at the Core

The success of this initiative underscores the importance of partnerships.

From insurers and regulators to meteorological services and local stakeholders, the programme’s ecosystem ensures a coordinated and efficient response. It also highlights the crucial role of the private sector, often overlooked in development efforts, in building resilient market systems that respond swiftly to disasters.

Through PICAP, the UN has built a robust insurance ecosystem, involving the Reserve Bank of Fiji, local insurers, cooperatives, agri-agencies and the CSO/NGO sector.

This ecosystem is agile and responsive. It prioritises consumer education and awareness and works hand-in-hand to harness the potential of insurance to provide economic security and financial safety during extreme weather events.

Yet another rainfall event in March 2024 triggered more payments and tested the ecosystem. And yet again the ecosystem responded with agility to process payments to over 1,700 beneficiaries, including the historic payout of FJ$1,000 each for two smallholder farmers(link is external).

A Pioneering Solution

With this success, Fiji is ready to scale parametric insurance to a larger audience. The Reserve Bank of Fiji will lead the expansion as part of a new partnership with SUN Insurance and Tower Insurance, supported by  the InsuResilience Solutions Fund.

The RBF becomes the first central bank in the Pacific, and possibly globally, to take ownership of the national implementation of parametric micro-insurance. We at the UN aim to carry over this momentum to achieve similar goals in other Pacific markets. 

The base parametric solution has inspired an Anticipatory Action (AA) product focused on disaster preparedness and proactive response. In partnership with UN Office for Disaster Risk Reduction, UNDP, and UNCDF piloted an anticipatory climate risk insurance scheme(link is external) in Fiji for the 2023-2024 cyclone cycle, covering over 10,000 individuals across four cooperatives. 

Offering payouts of up to FJ$50,000 based on windspeed forecasts, the scheme will expand to 12 communities in 2024-2025, with regional rollout planned in the Solomon Islands and Samoa. In a region where the next cyclone or flood is not a question of if but when, this innovative approach offers Pacific Islanders a measure of certainty in uncertain times.

While the world debates climate action, parametric insurance is already providing economic security for those on the frontlines of climate change in the Pacific. The success of parametric insurance in Fiji proves that when climate action is grounded in a locally developed, participative solutions and evidence-based approaches, there are lasting and tangible positive impacts for climate-vulnerable communities.