Climate Risk Adaptation and Insurance in the Caribbean Making Weather-Index Microinsurance Work for Vulnerable Individuals Sobiah Becker
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 insurancerelated 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
Climate Risk Adaptation and Insurance in the Caribbean 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)
Target Countries Jamaica St. Lucia Grenada Source: caribbean-on-line.com
Climate Change: Counting the Cost 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 Poverty and social vulnerability are intertwined! 08.07.2014 5
Getting to Know Our Customer 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 08.07.2014 6 Microinsurance
Getting to Know Our Customer 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.)
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.
Coping Strategies and their Impacts DID NOT REPAIR/REPLACE (%) OTHER (INCLUDES WAITING) (%) USED SAVINGS (%) SOLD POSSESSIONS (%) 43.5 20.7 69.1 1.1 *Stressor Levels from Sebstad et al. (2006) 08.07.2014 becker@ehs.unu.edu
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? 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 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 08.07.2014 12
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 08.07.2014 14
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 08.07.2014 15
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. 08.07.2014 17
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
Evaluation: Impact Assessment of Insurance Products 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
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 08.07.2014 21
Thank you! 08.07.2014 22