The Lagos State Government has entered into a parametric flood risk insurance policy in the Nigerian insurance market, aiming to protect up to 4 million vulnerable people and provide up to US$7.5 million in flood response and recovery funds.
The launch of the policy represents an important achievement in the Tripartite Agreement program, which aims to strengthen the capacity of developing countries to cope with climate risks.
The program is a public-private partnership between the Insurance Development Forum (IDF), the United Nations Development Program (UNDP) and the German Federal Ministry for Economic Cooperation and Development (BMZ) through the InsuResilience Solutions Fund (ISF).
The policy, now in effect, enables local governments to quickly access funding to support emergency response efforts.
This includes disaster relief and direct cash transfers to affected communities in the seven local government areas covered by the policy, as outlined in the Lagos Flood Contingency Plan developed with support from UNDP and Africa Risk Capacity.
Climate change is exacerbating flooding in Lagos, a coastal megacity of more than 22 million people. Rapid urbanization has exacerbated these impacts, disproportionately affecting 80% of the low-income population with insurance coverage below 0.5%.
The Tripartite Agreement Plan Nigeria project, led by the Lagos State Government, launches in 2022 and aims to unlock financial resources for communities to prepare for and recover from climate impacts.
The Governor of Lagos State, His Excellency Babajide Olusola Sanwo-Olu, said: “Climate inaction could cost Lagos State nearly $40 billion by 2050, with severe consequences for our people, infrastructure and economy. Our wetlands and biodiversity are also threatened.
“These realities require urgent action. This ground-breaking parametric flood insurance policy enhances our ability to protect lives, livelihoods and public finances, while integrating climate risk management into Lagos State’s long-term development planning.”
The parametric flood risk product is a collaboration between the Lagos State Government and IDF member insurance organizations.
The team includes AXA Climate, Nigerian company AXA Mansard, Swiss Re, ICEYE (a satellite company), flood modelers JBA Risk Management and Africa Risk Capacity Ltd.
ISF co-financed the work with IDF insurance industry members, with support from the United Nations Development Program in Nigeria and the United Nations Development Program Insurance and Risk Financing Facility.
Partners in Nigeria include the Office of Sustainable Development Goals (OSDG) of the Lagos State Government, the Lagos State Ministry of Finance, the Lagos State Ministry of Budget and Economic Planning, and the Lagos State Emergency Management Agency (LASEMA).
Karina Whalley, Head of Public Sector at AXA Climate and Co-Leader of the IDF Lagos Programme, commented: “This policy demonstrates the power of insurance to help prepare before disasters, recover faster after, and increase the financial resilience of governments; in short, preparing countries for the future.
“This product design leverages the technical expertise of our industry members in flood risk modeling and parametric insurance to develop a scalable solution tailored to the needs of climate-vulnerable communities in Lagos.”
The insurance product is delivered by the IDF team and received regulatory approval earlier this year. ISF funds 90% of the first year’s premium to enable placement.
In addition, the Lagos State Government expressed its commitment to increase premium financial allocation to more than 10% in the second and third years of the policy to ensure the sustainability of the protection provided by the product.
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