Page - 495 - in Loss and Damage from Climate Change - Concepts, Methods and Policy Options
Image of the Page - 495 -
Text of the Page - 495 -
21 InsuranceasaResponse toLossandDamage? 495
21.4.1 TheExperienceofMicro-insurance inPromoting
RiskReduction
Themessagethatinsurancepracticeswillrequirereformiftheyaretobetterpromote
risk reductionholdsnotonly for indemnity-basedsystems inwealthycountries,but
alsoforparametricmicro-insurancesystemsthatareincreasinglytargetingresource-
poorclients in thedevelopingworld (for reviews, seeLinnerooth-Bayeret al. 2012;
Mechleretal.2006;SchäferandWaters2016).Alreadyin2010,therewereareported
36parametricweatherinsuranceprograms,including28addressingindividualfarm-
ers/herders,residentsofinformalsettlements,villageorcooperativerisk(Hazelletal.
2010),withmanyother programshaving appeared since then (Schäfer andWaters
2016).
Parametric systems are notable for the absence of moral hazard. The insured
remainmotivated to reduce their losses and damages because insurance disburse-
ments, if they are triggered, are not based on actual losses. For example, a farmer
with a parametric insurance contract, which pays out if rainfall falls below a pre-
defined level, can gain doubly byplanting drought-resistant crops since the farmer
willhavelesslossesandstill receiveapay-out.Beyondtheeliminationofmoralhaz-
ard, the literature on parametricmicro-insurancemakes little reference to specific
risk-reduction requirements, for example, in the formof conditions orwarranties,
andtherearefewaccountsofmicro-insurersinformingclientsofhazardsoradvising
themonrisk-reductionactivities.
One notable positive exception is the R4 Rural Resilience Initiative (R4) that
offersmicro-insurance for drought risk to food-insecure communities in Ethiopia,
Senegal,MalawiandZambia(seeBox21.1).R4currentlyreachesover40,000farms
throughacombinationofitsfourrisk-managementstrategies:Thefirst,R1,promotes
improved resourcemanagement (risk reduction);R2 supportsmicrocredit (prudent
risk taking;);R3 is insurance (risk transfer); andR4 is savings (risk reserves). The
mostuniqueandinterestingfeatureof this initiative is itsdirect link to thereduction
of crop loss fromdrought. In lieu of paying aapremium, cash-constrained farmers
can opt to participate in an insurance-for-assets (IFA) plan, whereby they pay the
premium through their labour on projects that reduce risk in the community, such
as field irrigation projects and tree planting (World Food Programme andOxfam
America 2016). It should be noted, however, that the R4 Program operates with
generously subsidised premiums, even to those not participating in insurance-for-
assets, andcannotbecompared toamarket-based insuranceprogram.
R4 is exemplary by providing a proven insurance system design that promotes
DRR, especially since the riskmanagement experiences of most micro-insurance
programssuggest that theycouldbecomeamorepowerfulDRRtoolwithcarefully
designed interventions by governments or donors. Importantly, the ability of those
mostvulnerable to reduce theirownriskand tochange theirbehaviourmaybevery
limitedornot feasibleunless supportedbydonors.
Loss and Damage from Climate Change
Concepts, Methods and Policy Options
- Title
- Loss and Damage from Climate Change
- Subtitle
- Concepts, Methods and Policy Options
- Authors
- Reinhard Mechler
- Laurens M. Bouwer
- Thomas Schinko
- Swenja Surminski
- JoAnne Linnerooth-Bayer
- Publisher
- Springer Open
- Date
- 2019
- Language
- English
- License
- CC BY 4.0
- ISBN
- 978-3-319-72026-5
- Size
- 16.0 x 24.0 cm
- Pages
- 580
- Keywords
- Environment, Climate change, Environmental law, Environmental policy, Risk management
- Categories
- International
- Naturwissenschaften Umwelt und Klima