The Medellin Project: A climate insurance success story - Climate Champions
The Medellín Project: A climate insurance success story - Climate Champions
The Medellín Project: A climate insurance success story By Climate Champions | September 21, 2023
For more information visit I DF Medellin Project Latest Update
- Partner: Insurance Development Forum (IDF), InsuResilience
- Implementer: Medellín Administrative Department of Disaster Risk Management (DAGRD)- IDF, InsuResilience, German Federal Ministry for Economic Cooperation and Development (BMZ), and the United Nations Development Programme (UNDP) – co-funded by the InsuResilience Solutions Fund (ISF) and IDF implementation partners, namely WTW and Hannover Re.
- Country & Region: Colombia, Latin America and the Caribbean
- Impact System: Finance/ Human settlements, Infrastructure and Early Warning Systems
- Beneficiaries / Impact: Medellín District, including its 16 communes and 5 corregimientos – potential to benefit < 4,000,000 people
Amid the climate crisis, the city of Medellín, home to over 4 million people, finds itself increasingly vulnerable to floods and landslides. To combat these threats and provide swift financial assistance in times of need, the Medellín Project was initiated. Its core mission: bolster Medellín’s financial resilience against climate-related risks and natural disasters.
In 2018, under a Tripartite Agreement – an initiative between the Insurance Development Forum (IDF), the German Federal Ministry for Economic Cooperation and Development (BMZ), and the United Nations Development Programme (UNDP) – co-funded by the InsuResilience Solutions Fund (ISF) and IDF implementation partners, namely WTW and Hannover Re, and the Medellín Administrative Department of Disaster Risk Management (DAGRD), embarked on a transformative two-year journey. Their goal was to fortify urban resilience, covering not only Medellin itself but also its 16 communes and 5 corregimientos, with the potential to benefit more than 4 million residents. The project’s cornerstone was parametric insurance, a flexible system where predetermined triggers, such as specific rainfall levels, instantly prompt financial aid without the need for lengthy damage assessments.
Collaboration was pivotal, as was adaptability. Medellín’s government served as the policyholder, ensuring swift payouts without bureaucratic delays. Common challenges faced in developing parametric disaster insurance solutions in climate-vulnerable regions were navigated. The project shifted from reliance on satellite data to local sources, including firsthand accounts, seismic data from the Colombian Geological Service, and rainfall data from the Aburrá Valley Early Warning System. Regulatory obstacles were also addressed, with the project adapting to evolving insurance regulations and exploring alternative risk transfer mechanisms, such as financial derivatives.
The outcome was a tailor-made insurance solution enveloping Medellín’s vulnerabilities. The Municipality of Medellín was engaged through the Municipal Fund for Disaster Risk Management (FONGRED). Technical expertise was developed, knowledge shared, and local barriers navigated. This project acted as the bridge connecting the insurance sector and the community’s needs, ultimately empowering the city to manage its own risk.
The project yielded valuable lessons put in practice:
Collaboration with local stakeholders Understanding public administration dynamics is critical for a compliant insurance product Centralized databases on historical climate hazards Establishing a common language among all stakeholders Flexibility in adapting to emerging data and political environment
As the Medellín Project draws to a close, it leaves valuable learning from the potent partnership of public and private sectors. The project partners and implementers are eager to explore the replicability of similar financial solutions for other cities in Colombia, while exploring next steps for the future of the Tripartite Agreement.
The IDF and its partners will be actively participating in COP28, sharing lessons learned to advance the role of non-state actors and public-private partnerships in delivering practical financial solutions for adaptation and resilience.
Related Knowledge Center: Climate economics
Climate change is now a driver of the world’s economy. The impact is profound:
- Catastrophic weather events — hurricanes, floods, droughts, high temperatures — are more frequent and more extreme. The cost can be measured in both the initial damage caused and the longer-term impact on the economy.
- Vulnerable communities are increasing climate-related investments, hardening infrastructure and taking other protective measures.
- Investment in carbon capture and storage technologies is increasingly rapidly.
- Governments are making investments and crafting regulations to reduce emissions of carbon dioxide and other greenhouse gases.
On top of all of this is the cost of uncertainty. As the Fourth National Climate Assessment, released in 2018 by the U.S. Global Change Research Program, says, “The assumption that current and future climate conditions will resemble the recent past is no longer valid.”