Yucatán capital Mérida becomes fourth city to join climate insurance program

Photo: Renán Barrera (left), Mayor of Mérida, Mexico, and Edgar Villaseñor Franco, ICLEI Director for Mexico, Central America and the Caribbean (MECS), after signing the letter of intent to join the Urban Infrastructure Insurance Facility project.

Mérida, Mexico, capital of the Yucatán Peninsula, became the fourth pilot city to express interest in joining the Urban Infrastructure Insurance Facility (UIIF) during the ICLEI World Congress, held in Malmö, Sweden, from 11-13 May, 2022. Mérida joins three other pilot cities for the project that have already expressed their interests: Recife, Brazil; Kingston, Jamaica; and Monterrey, Mexico.

UIIF provides insurance protection that secures critical infrastructure and vulnerable populations in Latin American and Caribbean cities from the impacts of the climate crisis. It is implemented by the ICLEI – Local Governments for Sustainability and financed by the German government through KfW – Development Bank on behalf of the Federal Ministry for Economic Cooperation and Development.

“Mérida is already experiencing the consequences of climate change such as cyclones and hurricanes,” Mérida Mayor Renán Barrera said. “The Urban Infrastructure Insurance Facility is an innovative mechanism to protect citizens and valuable assets in the city.” 

Barrera signed a letter of intent to initiate a needs assessment and financial study that will establish the basis for a tailor-made insurance policy against climate change and natural disasters during an invitation-only bilateral meeting at the ICLEI World Congress.

Climate risks

Mérida, as well as Mexico in general, face multiple climate risks including sea level rise, stronger storms, rising temperatures, drought, and more intense rainfall, according to the USAID’s ClimateLinks. By 2050, the average temperature is projected to increase by up to 2°C, annual precipitation by 18 percent on extreme rainfall days, and sea level by 0.7 meters on the Atlantic coast. In Yucatán, climate impacts will result in greater human mortality, disturbed agriculture and fishing, droughts, fires, diseases, and water shortages, according to Salvador Flores Guido, research professor at the Universidad Autónoma de Yucatán.

Also attending the signing were leaders of two other UIIF pilot cities: Senator Councillor Delroy Williams, Mayor of Kingston, Jamaica, and Isabella de Roldão, Vice Mayor of Recife, Brazil.

“Jamaica is the third-most exposed country in the world,” Williams said. “90% of our population is exposed to climate-related events, and 46% reside in Kingston.”

According to a risk assessment by the Inter-American Development Bank, Kingston would lose more than $2 billion in public infrastructure during a once-in-500-year storm, while Jamaica as a whole would lose $2.4 billion in infrastructure during a once-in-250-year storm. Such storms are becoming increasingly common as a result of the climate crisis.

Another UIIF pilot, Recife, is one of the most vulnerable cities in Brazil, Isabella de Roldão said. By joining the insurance program, Recife will host the largest study of risk in the region, including an assessment of vulnerable populations with a special focus on gender. “Access to financial resources is difficult since they are scarce,” she said. “These efforts from ICLEI and KfW are very needed.”

Advantages of insurance

Andreas Bollmann, expert on climate risk finance and global reinsurance and founding partner of Faber Consulting AG, discussed the benefits for cities taking out insurance against climate risk now as opposed to waiting until after disaster strikes. Insurance is part of a comprehensive disaster risk management framework, rapidly providing financial resources after a disaster and offering financial stability in difficult times, he said.

“Unlike acquiring debt, which is paid by future city administrations and generations, insurance is acquired today, paid for by today, and benefits can be received the moment they are needed,” Bollman said. “This prevents cities from falling in default, or even worse, putting aside investment that the city needs to pay a debt.”

ICLEI Secretary General Gino Van Begin pointed to insurance as an essential part of an integrated urban adaptation strategy for disaster risk management. 

“While we can anticipate a future that will not be very forgiving, we also have the opportunity to use it as a springboard to rise above those vulnerabilities and tap into a unique financial insurance solution that meets at the crossroads of local governments and the private sector,” Van Begin said. “The essence of the project is co-development and we will learn together to make our cities safe and resilient in an integrated way.”