Making Weather-Index Microinsurance Work for Vulnerable Individuals

Sobiah Becker

Climate Risk Adaptation and Insurance in the Caribbean

Background

Munich Climate Insurance Initiative Initiated in 2005 by experts from various backgrounds

(insurance industry, academia, non-governmental organisations, international organisations)

Aim: Support the development and promotion of insurance-related solutions in the context of enhanced risk reduction & management to help manage the impacts of climate change

Hosted at and in cooperation with UNU-EHS MCII submission to UNFCCC (COP-14, Poznan 2008) Conceptual development of disaster risk management and

the use of risk transfer in the context of adaptation to climate change

Policy briefings & clearinghouse for insurance/risk management expertise for UNFCCC delegates

Project Consortium MCII at UNU-EHS: coordination,

research, evaluation Caribbean Catastrophe Risk

Insurance Facility Microensure Munich Re

Donor International Climate Initiative of

the German Federal Ministry for the Environment, Nature Conservation, Nuclear Safety (BMU)

Climate Risk Adaptation and Insurance in the Caribbean

Target Countries

Jamaica

St. Lucia

Grenada

Source: caribbean-on-line.com

Poverty and social vulnerability are intertwined!

Coping strategies often lead vulnerable populations deeper into poverty

Over the last 30 years 1.5 million affectees of extreme weather events in the eastern Caribbean

Losses of up to 6% of annual GNP caused by extreme weather in some Caribbean countries

Negative impacts on economic growth and productivity St Lucia listed among the world‘s top 40 climate „hot spots“

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Climate Change: Counting the Cost

Getting to Know Our Customer

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Demand Study 2011 1. What coping strategies

did low-income populations employ?

2. Was there a demand for risk transfer solutions?

3. Were they willing to pay?

4. How will the solutions be distributed?

Latin American Workshop on Microinsurance

Understand risk management needs of low-income people 1. Fieldwork 2011 2. Qualitative Approach 3. Focus Group Discussions with different stakeholder

groups: 1. Low-income people (farmers, fishermen, day

labourers) 2. Social Aggregators (credit unions, farmer associations,

cooperatives, rural banks, etc.) 3. DRM organisations (CIMH, 5C’s, NGOs, etc.) 4. Insurance sector 5. Government (MoAg, MoF, MoT, MoD, etc.)

Getting to Know Our Customer

Coping Strategies in Tourism and Agriculture in the Caribbean: Survey Results (2)

Grenada (%) St. Lucia (%) Jamaica (%) Belize (%) Stressor Level

Insurance Payout 4.8 1.5 2.9 8.6 Low

Used Savings 45.7 96.2 65.4 34.5 Medium

Used Remittances 3.8 3.1 9.6 1.7 Medium*

Found another job 10.5 6.1 0.0 12.1 Medium

Sold possessions 1.9 1.5 0.0 13.8 High

Government Assistance 34.3 8.4 1.9 25.9 Medium*

Borrowed (informal) 7.6 10.7 16.3 13.8 Medium

Borrowed (formal) 7.6 10.7 0.0 36.2 Medium

Did not repair/replace 22.9 59.5 48.1 24.1 ?High?*

Other (includes ‘waiting’) 9.5 0.8 51.9 6.9 ?High?*

TOTAL 148.6 198.5 196.1 177.6 -

Stressor Levels from Sebstad et al. (2006). Totals do not sum to 100% as multiple responses were allowed. High amounts over 100% indicates multiple coping strategies. *Indicates that stressor level was not included in Sebstad et al. (2006) but inferred from other levels.

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becker@ehs.unu.edu

DID NOT REPAIR/REPLACE

(%)

OTHER (INCLUDES WAITING) (%)

USED SAVINGS (%) SOLD POSSESSIONS (%)

43.5

20.7 1.1 69.1

*Stressor Levels from Sebstad et al. (2006)

Coping Strategies and their Impacts

Level of demand for insurance by country (in %)

Results: Moderate demand: 33% High to very high demand: 23%

Source: Lashley and Warner 2012

Our Goals

Develop parametric weather index insurance solutions for low-income people that work

Extend the financial safety net to previously excluded persons

Find ways to catalyse sustainable adaptation to climate change and move toward ‚climate resilient pathways for growth‘

What role can climate risk insurance play?

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‘If you give me the forms right now I will sign up (for the Livelihood Protection Policy) I can not get an insurance to insure my business on the sea front in Dennery’

An effective instrument to manage and transfer risk

Spreads risk evenly, prices risk and creates a secure space within which investments can be made

Making persons aware of the risks they face, encouraging them to proactively manage risk, means that scarce public resources can be diverted to other development efforts

Risk Transfer Solutions for Loss and Damage

Livelihood Protection Policy Parametric product: Dual

peril - wind-speed, rain Beneficiaries: Individuals Beneficiaries determine the

level of coverage they require - product sold in units

Effect: Provides liquidity to individuals in the aftermath of extreme weather events to protect livelihoods

Loan Portfolio Cover Parametric product: Dual

peril - wind-speed, rain Beneficiaries: Development

finance institutions, credit unions/cooperatives etc

Beneficiaries determine what extent of the lending portfolio exposed to extreme weather they wish to insure (e.g. agricultural sector)

Effect: Improves financial liquidity and terms of lending, increased economic activity in the long run

Livelihood Resilience Financial Resilience

Weather Index Insurance: How it works

Spatial Resolution of the target country

Wind speed and Rainfall

Correlation analysis for wind, rain

Trigger and payout structure of the Livelihood Protection Policy

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The Livelihood Protection Policy

Protects individuals against weather extremes, climate shocks

Provides recourse to coping strategies that could lead to poverty

Improves access to credit, leading to financial stability in the long run

Encourages behaviour shift from risk neutral to risk aware

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Antoine‘s story WHAT ANTOINE EXPERIENCED Before the hurricane Antoine did not

know a hurricane was approaching and did not secure his greenhouses or other assets in time.

Immediately after Two out of three greenhouses were lost, along with his sugarcane crop and livestock. He and his family barely escaped with their lives.

Medium-term Antoine spent all of his savings on food and medicine for his family. He could not pay back his loan for the greenhouses and must resort to selling other assets and asking relatives for money.

Long-term Antoine and his family ended up deeply in debt. The lost greenhouses were not replaced, making the family more vulnerable to subsequent hurricanes. These are likely to destroy more of their assets and lead them deeper into poverty

HOW LPP COULD HAVE HELPED ANTOINE Before the hurricane Antoine receives an

SMS warning of an approaching hurricane. He secures his property and leads his family to a safe location.

Immediately after As he was able to secure his property only one greenhouse is lost. The hurricane exceeded the rainfall/wind speed threshold, so Antoine gets an SMS telling him he will receive a payout within 14 days.

Medium-term With the payout deposited in his bank account Antoine can repay his loan and start rebuilding his livelihood without resorting to more desperate coping measures.

Long-term Antoine is able to both repay his loan and rebuild the lost greenhouses with the payout he receives from his policy. This puts him and his family in a better position for when another hurricane inevitably strikes.

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“I had full confidence in the product and EC Global Insurance. I think it is very important to have some form of insurance as a honey producer, given the current climatic conditions we face. During the trough we experienced a high level of rainfall. I received the SMS notification of the trigger and the payment was received in the time promised. I am extremely happy that there is a payout and it is assisting”.

Walter Edwin

St Lucia Honey Producers‘ Association

With the payout Mr Edwin received, he was able to buy much needed supplies for his bee farm – without this timely help, his business would have been destroyed 18

Market Test in Jamaica (ETH Zurich, UWI, MCII/UNU-EHS) 100 villages in two parishes selected To demonstrate take-up of insurance products Show-case for Jamaica regulatory authority

Currently being implemented in Portland and St. Thomas parishes

Evaluation: Impact Assessment of Insurance Products

Baseline Survey (ETH Zurich, UWI, UNU-EHS) What factors influence take-up of insurance products? How does the product influence people’s livelihood? How does the product influence the adoption of preventive

measures? Quantitative approach: 1500 households (100 villages), HH

interviews Randomisation Timeframe: late 2012 – 2015

Evaluation: Impact Assessment of Insurance Products

Addressing the Adaptation Needs of Vulnerable Communities Using insurance to address adaptation needs: Not just about

public OR private solutions Innovations & partnerships in using insurance Local level: Building resilience with local insurance & safety

nets: Helping low-income people absorb shocks and temper downturns

National level: Combining risk transfer and measures to protect national development priorities

Regional & international: Combining risk transfer with regional risk capacity & forecasting

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Thank you!