A premium plan for the neediest

Could insurance giants save the world’s poor from the effects of climate change?

AS WESTERN governments dither at the negotiating table over how to help the world’s poorest people cope with climate change, some unlikely saviours have stepped up to the plate: the giants of the global insurance industry. As well as providing protection from the increasingly unpredictable weather, the premiums could also be a powerful way to get poor people to adapt to climate change by encouraging them to invest in measures like drought-resistant crops. Is this profit-driven endeavour too good to be true?

Each year, people in the small Ethiopian village of Adi Ha depend on the precise timing of the rain to grow teff, a sourtasting grain they turn into the traditional injera flatbread. If the rains fail, so do their livelihoods. Climate models forecast that droughts, floods, heatwaves and severe storms are destined to become more frequent, so what can poor farmers do? US and European farmers buy crop insurance to cope with extreme weather. But the cost of checking claims from smallholder farmers in developing countries is prohibitive, and so insurance companies have tended to steer clear of them. Now a different type of insurance scheme is being rolled out in Adi Ha and many other places in Africa, Latin America and Asia, backed by corporate giants such as Swiss Re and
Munich Re . Instead of insuring against lost crops, “index insurance” protects farmers against the vagaries of the weather.

For example, if rain gauges at local weather stations drop below a certain level, insurance companies can automatically transfer a payout to farmers without having to visit them. Cover is tailored to each region. In Adi Ha, where farmers need the rains to start before a certain date, those who are insured will receive a payment if rains fail to come before an agreed cut-off date. In the hurricane-prone Caribbean, hotel owners can buy insurance that pays out if winds exceed a certain speed. The premiums can cost as little as a few dollars a year. The scheme in Ethiopia is backed by Swiss Re, but like others of its kind, it only got off the ground because of the firm’s collaborators, in this case Oxfam and the
International Research Institute for Climate and Society (IRI) at Columbia University, New York. Alliances between NGOs, charities and insurance firms may seem an unlikely match. “Oxfam went through a big soul-searching process before climbing on board microinsurance projects, and ultimately decided it made sense,” says Marjorie Victor of Oxfam America. “Insurance companies have surprisingly aligned interests with NGOs when it comes to reducing risk.” According to Molly Hellmuth of IRI, “the trick is to balance the needs of companies to make a profit with the needs of farmers”. At a session on insurance and climate change held in March in Copenhagen, Pablo Suarez , a researcher who has consulted on insurance projects for Oxfam and the UN Development Programme , confessed that he initially approached the idea with a degree of scepticism, but now calls himself a “convert”. Heavyweight humanitarians are also backing the idea. Kofi Annan, former secretary-general of the UN and head of the Global Humanitarian Forum , has said


Source of Information : New Scientist July 4 2009