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Insurance has been proposed as a cost-effective way of coping with the financial impacts of climate change. Depending on the way the insurance is designed, the insurance mechanism can address a wide variety of risks emanating from climatic and non-climatic sources. The evidence indicates that there are many advantages of insurance (Siamwalla and Valdes, 1986; Arnold, 2008; Swiss Re, 2010). These include the shift in emphasis from risk mitigation to response, coverage of residual risks uncovered by the other risk mitigation mechanisms and stabilization of rural incomes by reducing the adverse effects of income fluctuation. Insurance also provides opportunities for public-private partnerships and reduces the burden on government resources for post-disaster relief and reconstruction. Communities and individuals can also quickly renew and restore livelihood activities through the use of insurance.

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