Climate Change, Social Protection and Insurance

Climate Change, Social Protection & Insurance:

Michael R Carter

University of California, Davis & NBERBASIS I4 Index Insurance Innovation Initiative

http://basis.ucdavis.edu

Innovations in Index Insurance toPromote Agricultural and Livestock Development

Addis Ababa

December 2, 2015

M.R. Carter Climate Change & Insurance

Integrated Social Protection & Climate Change

Earlier today, spoke about the efficacy & cost-effectiveness ofan integrated social protection scheme that uses partialinsurance subsidies to reduce vulnerability & incentivizeinvestmentClimate change–understood simply as an increase in thefrequency & severity of climate shocks–increases vulnerability& makes it all the more important to find an integrated socialprotection solutionLet’s look at some results from a simulation analysis done aspart of the World Bank’s new report Shock Waves: Managingthe Impacts of Climate Change on Poverty


Base Case Climate Scenario: Cash Transfer vs.IntegratedSocial Protection

Taking the same budget constraint, government first spendsmoney offering a 50% insurance subsidy to anyone with lessthan 35 units of assetsResidual budget spent on cash transfers as before


Further Insights into Efficacy of Alternative Schemes

Insurance subsidy leads to more even draw on budgetCheaper too (but note have targeting differences)Finally, see growth impacts of insurance (asset transfers areunanticipated, however)


Shocks and Climate Change


Policy Efficacy in the Face of Climate Change


Conclusion

Weather & other shocks may be an important driver of povertyCoping strategies of the vulnerable are partially effective in theshort-term, but may fail in the longer-term as theconsequences of reduced nutrition are transmitted through tothe next generationLogic of contingent social protection for the vulnerable is clear:

Prevent the growth of the number of destitute (which crowdsthe social protection budget & increases the poverty gap)Reduce the inter-generational transmission of poverty causedby asset smoothing

Insurance can in principal serve at least a partially self-financedform of social protection for the vulnerableHowever, if climate change & risk become too severe, theneven vulnerability-targeted program lose their efficacy.Moreover, pricing risk in the face of climate change becomeseven more problematicRaises the stakes on finding a public reinsurance solution


Climate Change, Social Protection and Insurance

Government & Nonprofit

Transcript of Climate Change, Social Protection and Insurance