The need for financial resilience to address climate risk in Melanesian coastal fishing communities

Climate change is affecting coastal fishing communities in Fiji and Papua New Guinea (PNG) through rising temperatures, sea-level rise, flooding, drought, coastal erosion, an increase in extreme weather events, coral bleaching, and ocean acidification.

Over time, these hazard events are likely to increase in frequency and severity, threatening the livelihoods and food security of these communities. With 25% and 40% of the Fijian and Papua New Guinean population respectively living below the national poverty line, climate hazards threaten to reinforce existing poverty traps as well as push more people into poverty. These poverty traps encourage unsustainable use of resources for short-term gain, depleting natural resources that are already degraded and endangered by a range of man-made and climate-related stressors, and creating a feedback loop where resource scarcity becomes even more amplified.

To respond to these challenges, WTW is working alongside WWF Pacific on a project funded by the Global Environment Facility (GEF). This project will develop insurance products to help fisher communities in Fiji (Tavua and Nadogo Districts) and Papua New Guinea (Madang Province) be more resilient to the effects of climate hazards whilst protecting the ecosystems upon which they depend. Pre-arranged, trigger-based insurance, also called Parametric insurance, can help smooth the impacts of climate hazards, reducing the need for communities to resort to destructive coping mechanisms (e.g., removal of children from school, reduction in food consumption, and unsustainable use of limited natural resources including overfishing or forest and mangrove clearance). Shock-responsive financing can act as a safety net, guaranteeing quick pay-outs that increase communities’ resilience. In order to develop insurance products that respond to the needs of the communities and are integrated into their current practices, we conducted a survey in each target community, surveying 333 households in Fiji and 168 in PNG. The results are available to download at the bottom of this page.

The surveys found that community-based initiatives to govern marine resources are strong, particularly in Fiji, where Locally Managed Marine Areas (which give responsibility for marine resource management to local resource owners and enshrine traditional management practices) have been set up across most of Fiji’s customary rights-based inshore fisheries. Respondents reported a range of active rules including bans on catching undersized fish, bans on the use of dynamite, no-take fishing areas, and restrictions on the use of agro-chemicals. More than 90% of the respondents in both Fiji and PNG expressed support for the introduction of additional rules although many felt the enforcement of existing rules and plans could also be strengthened. The survey also found that the most respondents had observed a decrease in the availability of fish in the past five years, signalling the precariousness of their livelihoods and food security. With fishing and farming comprising the majority of their livelihoods, and directly providing around 50% and 80% of their food intake in Fiji and PNG, respectively, communities may struggle to weather climate-related events that may impact these activities.

Financial capital, including insurance, can help to mitigate the impacts of these events. However, penetration of financial services in Fiji and PNG, such as banking and insurance (15% and 2% respectively), is low, and rural communities often lack access. Our survey findings confirm this: only 10% and 3% of respondents currently purchase any form of insurance in Fiji and PNG, respectively. But with low levels of savings and almost every respondent reporting the need to access additional funding in the aftermath of a climate-related event, these communities reported depending principally on government aid and assistance from friends and families. This leaves communities in a vulnerable position, waiting for support that may not materialise, that may be delayed, and/or that may not be sufficient. These results show the need for new mechanisms to increase their resilience. With the survey also finding that most respondents (76% in PNG) had no or limited understanding of insurance as well as limited trust in banks and insurers, this underscores the importance of financial literacy training, which WTW designed and delivered to the target communities in October and November 2022. The closing of the protection gap depends upon initiatives that build capacity from the ground up, and equip communities with the tools they need to access finance; without this, communities will not adopt new financial tools.

Engagement from participants in the financial literacy training courses, which covered sustainable livelihoods, savings, loans, and insurance, was positive, with participants demonstrating a high level of buy-in to the concept of insurance. However, with a large majority of the households in the target communities falling below the poverty line, one outstanding question is whether they can afford to pay for insurance premiums, or whether alternative sources of premium financing can be secured, at least during a pilot phase. These additional sources of premium financing could also reflect the wider pool of beneficiaries deriving benefits from enhanced ecosystem health. For example, insurance products may be able to help provide cash in the event of crop failures due to flood or drought, so that affected households do not displace farming effort onto the reef or resort to food restrictions. Insurance pay-outs could also finance conservation measures implemented to alleviate stressors to an ecosystem. In addition, offering insurance can de-risk and incentivise the adoption of sustainable fishing and farming methods, embedding livelihood resilience protection into a broader conservation finance solution.

Fishing communities in Fiji and PNG face significant development challenges which are only exacerbated by growing levels of climate risk. The survey results show that communities have a high level of dependence on fishing and farming, meaning they are exceptionally vulnerable to the effects of climate hazards. The communities lack financial resilience, and it is critical for them to build this in order to safeguard their livelihoods and food security, as well as the health of the ecosystems upon which they depend. Over the course of this project, we aim to create insurance products that respond to this challenge and support communities in weathering key climate-related events while also supporting the long-term sustainability of coastal ecosystems. With the first year of the project having carried out these surveys, desk-based reviews of hazards and existing response mechanisms, and financial literacy training, the next phase of the project now turns to insurance product design.