This is exactly what we saw with the recent unfortunate event in Saint Lucia. On Christmas Eve, a trough system hit Saint Lucia and this extreme weather event wreaked havoc. This event also demonstrated how effective the microinsurance solution - the Livelihood Protection Policy- was as all policy holders received a payout within 15 working days after the event. It allowed persons to start rebuilding their lives quickly after a natural disaster and also made them aware of the need to manage the risks that they face.
We are seeing a very gradual (slow but sure!) paradigm shift as people face upto the reality of a changing climate and become cognizant of the need to manage risks. We are using street theatre to educate communities, as well as other outreach and awareness raising activities
Yes, we did look for these examples. The case of Kilimo Salama might be a case in point. It's a seed insurance, among other things, and it can be bought only with specific products that already take changing weather patterns into account.
Another example that was not climate related but very inetresting was the Red Hairy Catterpillar Insurance Peoples Mutual provides to its federation farmers in India. Smallholders pay less for the insurance coverage for caterpillar damage if they plough their fields during summer, a measure that reduces the occurrence of red hairy caterpillars.
That is an important observation, Martin. Our experiences demonstrate that the agricultural extension officers by virtue of their direct interface with farmers, and the Ministries of Agriculture need to be co-opted in these efforts to encourage farmers to plant more drought/ wind resistant crops. We are also working on a closer collaboration with agricultural input suppliers so that policy holders get access to better seed varieties, better prices as a mechanism to 'reward' more risk aware behavior.
Martin, this is quite an interesting question. HARITA R4 is indeed a relevant example - however price as behavioral determinant of adaptation still needs to be studied and understood. The main difficulty here resides in how farmers make planting / farming decisions regarding upcoming crop seasons and associated climate. I know there is a body of literature on this matter but I still do not know how this could related precisely to climate change adaptation.
Thanks Zahid! I jumped ahead a bit but mentioning the examples we found. To summarize, we found only 5:
Kilimo Salama in Kenya
The R4 Rural Resilience Initiative or Harita in ethiopia
People Mutuals in India
The Livelihood Protection Policy in the Carribean
the ENSO Business Interruption Index Insurance in Peru
All of them have different mechanisms related to the 4 basic approaches we identified. But since these are only minor components of the policy, they have not been studies in detail so far. We believe that studying these existing examples more could be great first step to developing effective mechanisms that can be plugged into existing insurance schemes.
Insurance and changing climate...are an interesting combination. There is no doubt that weather index insurance can help farmers overcome the effects of adverse weather on their livelihoods and is an important tool that needs further development. However, actuarial models are based on historical patterns (20 years or more of data is recommended to develop a weather index insurance product), so what happens when climate "change" makes the existing databases suspect? What are insurers to do? My humble answer is to tread more carefully and partner with other governmental and non-governmental organizations.
The Climate Risk Adaptation and Insurance in the Caribbean project is implementing insurance solutions in Jamaica, Saint Lucia and Grenada aimed at low-income, vulnerable individuals as well as lending institutions with portfolios that are vulnerable to extreme weather events. Weather index based parametric insurance is a completely new concept for this region as until now only traditional indemnity based crop insurance programmes existed. It naturally follows that there was and still is an ongoing intensive effort to educate stakeholders about this type of insurance cover. The numbers are starting to grow and the recent payouts in Saint Lucia increased the confidence of the people - as there is no eligibility criteria and the product is priced so that persons without regular income streams are able to access the product - a usual reaction was 'this is too good to be true!'
Thanks Christina - did you get a sense from these organisations what they see as the growth potential for this component - only a minor component now, but what is feeling about the future?
You point to one major challenge related to this approach, Florent: this approach does not fall squarely into the existing communities of practice or literatures, as it brings together insights and experiences from microinsurance , adaptation of agricultural practices, climate change adapted inputs, and research on the effects of climate change on agriculture. All these fields are huge and have their own terminology, forums etc.. This discussion was meant to be a first forum to join the diverse communities.
its my first time too for participating in such a discussion so please be patient with me.
Talking about the success of these new insurance models, do you have any knowledge on the acceptance of this type of insurance practices on part of the local population? Are these models successful?
Just getting back to the bigger picture on microinsurance and adaptation to climate change, I think this is important to mention that climate change is one of the biggest current and future challenge for farmers in developing countries. Recent research and reports (see for example IPCC AR5 or World Bank - Turn Down the Heat) have clearly shown that in some regions - for example Africa and South Asia - climate change could potentially roll back decades of development efforts.
Two populations are projected to be primarily affected: rural poor and urban poor. Since most of the urban poor are originally flying from rural areas, it is crucial to focus on decrease rural poor vulnerability through adaptation and risk-transfer mechanisms such as microinsurance.
Our sense in the interviews was that this explicit focus on behavior change was not yet very explicit. It was more a logical by-product, and the main focus was on helping people to cope with disaster. This is a very young space, and it seems that awareness for this aspect of microinsurance is only emerging now that we have the first couple of years of experience with agri microinsurance as a product that can actually work.
Dear Felipe, this is the USD1billion question! Actuarial models are indeed calibrated using the past. There is a growing interest in the research community for this issue. Some approaches (for example one we are developing with my institute) tend to merge past information and projections for the future - in some kind of semi-probabilistic approach. This is indeed a challenging field but we are getting there.
Analyzing longer time series is of course critical (for our work in the Caribbean, we looked at 153 years of rain data and 14 years of wind data). There is enough evidence to suggest that the intensity and severity of extreme weather events will increase.
Over the last 30 years 1.5 million affectees of extreme weather events in the eastern Caribbean. In Jamaica, 96.3% of the national population, 94.9% of national territory, 96.3% of GDP is exposed - insurance can help assess and price risks, creating a space within which investments can happen.
Partnering with governmental and non-governmental actors, as well as civil society organizations is key!
Thanks Christina for sharing this mechanisms, In addition to this I would like to share few line below;
Especially small holders are at risks with the unpredictable weather condition – from the crops plantation period to harvesting period. Some time they suffer from the market system failures. If the small-holders are not protected from such unpredictable weather pattern, they might loose their produce for the particular planting/ harvesting session which make them more vulnerable, they have to wait to gain this lost for another season, therefore it is believed that micro -insurance provision to the small holders can protect small holders for being more vulnerable. The provisions of micro insurances system can develop some confident level among small holders to try out and test the new technology and crop management practices. About 14 years ago, Under the the SAPAP/UNDP Nepal similar to the micro insurance concept , we had piloted a community based insurance system which was successful to bring the Ultra- poor community and small holders in to the farming enterprises and economic development activities.
This is indeed a challenge. Agricultural microinsurance is quite a complicated product in and of itself, even without incentives to adaptation. Especially if the payout is determined on the basis of an index, and not based on the individual assessment of damage, this needs quite some explanation. In general, the concept of insurance is not something that comes naturally to most low-income people. They have to pay today to maybe get something in the future. So, explaining the additional aspect of adaptation can make it even more complicated. This is a challenge we heard in the interviews, and why implementing organizations are careful to add more detail to the policies.
It is key for governments to work in concert with the business sector. It is well known what happens to demand for insurance, when the expectation is of a full government bailout. Governments role is unquestioned but needs to be well thought out to avoid unintended consequences.