CASE STUDY Solar Geoengineering Solar Solar geoengineering involves using Parametric-based policies can techniques such as ‘brightening specify a physical index (like rainfall) geoengineering is clouds’ to reflect a small fraction of and a value of that index above or a technology that incoming sunlight back to space, below. A payout is automatically thereby counteracting global triggered according to the terms of aims to moderate warming. the insurance contract. The index Solar geoengineering could reduce serves as a proxy for a particular climate change. It regional climate hazards such as peril (like flooding). When applied to has the potential extreme temperatures, tropical climate change, parametric insurance to mitigate and cyclone intensity, or rises in sea is known as climate risk insurance. levels. However, evidence suggests But parametric insurance has reduce greenhouse that solar geoengineering cannot its limitations too. One potential mitigate all threats equally. Unequal pitfall is that the indices can fail to gas emissions and application of solar geoengineering correspond to the real-life effects to remove carbon could induce climate change risks. of climate change. Slow sea level For example, it could create localized rises not punctuated by discrete dioxide emissions. hydrological changes that would events would fail to trigger an index, cause flooding in some areas and resulting in long-term damage droughts in others. This would without any payouts. Parametric require new supplementary insurance insurance can also be expensive mechanisms to compensate any compared with other forms of possible victims. risk financing, particularly in more Experts have suggested using developed markets. parametric insurance to manage this risk and provide compensation. Parametric insurance ties payouts to objective environmental indicators. When specific indicators are hit, payouts are made automatically – and instantly – without the need for loss adjustment. 16