A version of this article was first published in the March 2024 edition of the Middle East Insurance Review.

Policymakers agreed to establish a fund that would help compensate vulnerable countries coping with loss and damage caused by climate change during COP28 in November and December 2023. According to MNK Re DIFC’s Mr Mario Nahas, reinsurers can also make an impact through schemes that combine private sector finance with government funding. Middle East Insurance Review spoke with him.

By Sarah Si

Like other regions, the Middle East has been impacted by climate change. According to the Tahir Institute for Middle East Policy, the Middle East is “one of the most vulnerable regions to climate change”.

MNK Re DIFC executive director and board member Mario Nahas said to Middle East Insurance Review

“Water scarcity is becoming more and more of a serious challenge, with 60% of the region living under extreme water stress whilst reports predict that temperatures in the region are set to rise by almost half a degree Celsius per decade, impacting crop yields, livestock and agriculture in particular.”

Damages and losses from climate-related events have also reached an average of over $1bn annually, he said.

Volatility for the reinsurance industry

Particularly in business lines such as agriculture and P&C, the effects of climate trends and the severity and frequency of natural disasters are difficult to predict, increasing volatility for reinsurance brokers, Mr Nahas said.

“In order to deal with the unpredictability of climate change, we also have seen a surge in the use of technology from reinsurers,” he said.

Impacted future insurability

According to the Greenpeace report Living on the Edge: The implications of climate change for six countries in the Middle East North Africa region, the Middle East is warming “nearly twice as fast as the global average”.

Mr Nahas said,

“Gulf coastal cities by the end of the century could find themselves inundated as waters rise.”

In five to 10 years, he said, the long-standing problem of the protection gap in the MENA region may increase.

“With extreme weather events including droughts, flooding, wildfires and cyclones increasing across the region, traditional insurance markets are less likely to have answers as the gap between the needs of businesses and consumers and actual available coverage increases,” he said.

COP28: How reinsurance can make a difference

According to Mr Nahas, at COP28 UAE in November and December 2023, policymakers agreed to set the ‘loss and damage’ fund in motion, with the UAE and Germany pledging $100m each to support vulnerable countries damaged by climate-related events.

He also said that the impact reinsurers could make in the Middle East “lies with the new schemes that combine private sector finance with government funding, allowing countries most vulnerable to climate change to build up resilience”.

Such a scheme includes One Acre Fund Re, a reinsurance fund that aims to protect millions of smallholder farmers across Africa by 2030 from the impact of climate change on agriculture.

According to the report Insuring a Sustainable Future: Building climate resilience through takaful by the United Nations Development Programme, takaful could also be used to build financial resilience in vulnerable Muslim-majority communities in the Middle East.

“With awareness of this risk-sharing product continuing to increase, there will be more and more opportunities for Middle East reinsurers who provide these services,” he said.

Mitigating the effects of climate change

Despite the negative impacts of climate change, Mr Nahas said that there was opportunity for collaboration.

“Policymakers, regulators and governments in the Middle East can gain valuable risk data and insights from the reinsurance sector on the impact of climate change, which can help form climate policies and regulations to encourage climate[1]resilient practices in a variety of sectors,” he said.

Public-private partnerships (PPP) could also be essential in mitigating the impact of climate change on communities in the Middle East, he said.

“It would share the financial burden of climate-related losses between the private sector and governments,” he said.

The creation of insurance pools to cover natural disasters could also be explored under PPP, he said. Education programmes would also be vital to raising awareness about climate risks and resilience measures.

“Policymakers can work with reinsurers to invest in the ability of local businesses and communities to deal with the impact of catastrophic events through knowledge transfer and training,” he said.