When discussing the Fund Responsible for Loss and Damage (The FRLD), the role of private sector participation cannot be understated. Private sector stakeholders can bring innovation, efficiency, cost-effective solutions and long-term sustainability to climate finance mechanisms. Local and regional insurance providers have technical expertise and the intimate access to design risk-transfer solutions that seamlessly complement public sector funding. By leveraging tools such as parametric insurance, the private sector ensures that vital monetary resources flow rapidly to the most vulnerable, reducing reliance on slow-moving aid systems and digitally bridging the last mile. Their participation also builds financial literacy and resilience at the community level, helping vulnerable populations to better anticipate, absorb, and recover from climate shocks.

A practical Pacific-based example comes from Samoa Surety Insurance (SSI), which has pioneered climate insurance solutions tailored for Pacific communities. Recently, SSI introduced an innovative Micro Climate Change Insurance Bundle covering multiple hazards such as cyclones, earthquakes, drought, and heavy rainfall, alongside everyday traditional protections like term-life, funeral, fire, personal accident and hospitalisation cover. In partnership with the UNCDF/UNDP Pacific Insurance and Climate Adaptation Programme (PICAP) and regional organisations, SSI has also launched an Anticipatory Action (AA) Insurance product, which delivers critical payouts to target groups before a disaster strikes, based on early warning forecasts for cyclones. These initiatives show how local private insurers can work hand-in-hand with civil society, government ministries, and international partners to operationalise climate finance on the ground. As climate impacts intensify, the Fund Responsible for Loss and Damage (The FRLD), established under the UNFCCC, is expected to provide vital financial relief for vulnerable states. Yet its effectiveness will depend not only on the amount of resources mobilised, but also on how quickly and fairly those resources reach affected communities. Embedding such mechanisms into National applications to the FRLD would not only enhance speed and transparency but also ensure solutions are rooted in local realities.

Why Parametric Insurance Matters

1.            Speed and Certainty of Payouts

Traditional disaster assistance often arrives too late. Parametric insurance, by contrast, issues payouts automatically when pre-agreed thresholds, such as wind speed, rainfall levels or seismic readings, are triggered. This removes the need for lengthy & costly on-the-ground assessments and provides affected governments and communities with immediate liquidity to respond.

2.            Transparency and Reduced Disputes

Because parametric contracts are based on objective, measurable indices, they limit room for disputes about causation or the scale of loss. This creates a fairer, more predictable system that gives vulnerable communities confidence in when and how assistance will be delivered.

3.            Financial Sustainability

Global climate-related economic losses are rising sharply, with damages from extreme weather in the last two decades averaging more than USD 140 billion annually. Parametric mechanisms help target funds more precisely, ensuring that limited resources in the FRLD are accessed efficiently and equitably.

Legal Momentum: The ICJ Advisory Opinion

On 23 July 2025, the International Court of Justice (ICJ) issued a historic advisory opinion affirming that states have binding obligations under international law to prevent climate harm and safeguard the rights of present and future generations.

The Court held that:

•             Failure to mitigate emissions or regulate fossil fuel subsidies may constitute an internationally wrongful act.

•             States’ obligations derive not only from treaties but also from customary international law and human rights principles.

•             These duties are erga omnes, owed to the entire international community, reinforcing the responsibility to provide effective remedies when harm occurs.

This Advisory Opinion provides a legal foundation for strengthening the FRLD. It transforms the Fund from a goodwill mechanism into a tool that states may be legally and morally obliged to support. Incorporating parametric insurance demonstrates that the Fund is not just symbolic but operationally capable of delivering timely redress consistent with international law, enshrining that while Pacific communities may be suffering from Climate Change, the largest global emitters should pay the price.

The Fund Responsible for Loss and Damage is a milestone in international climate finance. Yet to meet its promise, it must deliver not only adequate resources but also speed, fairness, and accountability. Parametric insurance, in conjunction with readdress for non-economic losses, offers precisely these qualities. Coupled with the ICJ’s recognition of states’ legal duties, embedding parametric mechanisms into states’ applications to the FRLD would both honour the principle of climate justice and provide a pragmatic, forward-looking model for climate resilience. The participation of insurance companies in carrying out parametric insurance will be crucial to the success and sustainability of the impacts of climate change under the loss and damage phenomena.