Climate Insurance-Linked Resilient Infrastructure Financing (CILRIF)

Overview 

Long-term climate insurance to cities at pre-arranged and below market rate premiums, linked to a financial product that would allow municipalities to invest in resilient infrastructure. 

The Problem 

Worldwide, communities and economies face increasing risks from extreme climate events. Many are developing markets with limited resources to expend on post-disaster recovery and pre-disaster resiliency development. Municipal level insurance could substantially reduce the financial burden on these municipalities. Still, the existing insurance products are renewed every 1-3 years and, thus, offer limited cash flow certainty due to lack of visibility on premiums. This leads to further difficulty in budgetary planning for climate-resilient infrastructure projects, which generally tend to target a longer time horizon. 

The Solution 

Climate Insurance-Linked Resilient Infrastructure Financing (CILRIF) is a long-term insurance solution linked with financing for climate-resilient infrastructure. Such a solution will enable cities to access affordable, 10–15-year climate insurance with pre-arranged premiums – contingent upon the cities’ commitment to invest in climate resiliency (funded via issuance of a separate financial product). Hence, cities would have access to post-disaster liquidity to support recovery. 

For cities raising financing for resilient infrastructure projects, the promise of long-term climate insurance will likely help them attract investment at interest rates lower than market rates. Investing in resilient infrastructure will reduce climate risk and lower insurance premiums. The combination of long-term climate insurance and resilient infrastructure should lead to further interest from private investors for development projects. 

Target Impact 

There is an enormous global need for climate risk insurance in cities and a need for billions of dollars of investment in urban infrastructure adaptation. So, the potential impact of improving climate insurance offerings for cities is significant. 

The expected impact is increased city-level climate resilience, reduced time to recovery from business interruption and economic losses through post-disaster liquidity provision, reduced cost of financing infrastructure due to availability of insurance, and climate-resilient infrastructure.  

CILRIF proponent is the United Nations Capital Development Fund (UNDF), which has engaged with multiple city administrations to short-list three cities for pilot projects.