The Political Economy of Premium Subsidies: Searching for better Impact and Design

Topic :

Risk pools offering climate-related insurance have been operating for several years in Africa, the Caribbean and the Pacific. All have benefitted from donor capitalisation and subsidisation of premiums in the past. With growing climate risks across all these regions; limited fiscal space in low- and middle-income countries; and an overburdened
humanitarian caseload, there is increasing interest in using donor subsidies to grow the risk pools and offer more reliable, cost-effective and faster support to disaster-affected communities. This has been the topic of extensive debate across humanitarian, development and climate fora, including recent G7 Summits and COP26, as a way of supporting loss and damage and contributing to a ‘Global Shield against Climate Risks’. IGP has been leading work to identify global standards and best practice in relation to premium subsidies, to help inform a likely increase in this kind of donor support.

This report specifically investigates the political economy of country-level decision-making in relation to sovereign-level CDRFI and related premium and capital support. It also analyses the political economy of donor decisions in relation to PCS. The report covers premium subsidies, investigating how these can shape governments’ incentives to purchase insurance as well as considering how the allocation and design of subsidies can affect their impact and effectiveness.

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