Climate Change, Social Protection & Insurance
- 1. Climate Change, Social Protection & Insurance: Michael R Carter University of California, Davis & NBER BASIS I4 Index Insurance Innovation Initiative http://basis.ucdavis.edu Innovations in Index Insurance to Promote Agricultural and Livestock Development Addis Ababa December 2, 2015 M.R. Carter Climate Change & Insurance
- 2. Integrated Social Protection & Climate Change Earlier today, spoke about the efficacy & cost-effectiveness of an integrated social protection scheme that uses partial insurance subsidies to reduce vulnerability & incentivize investment Climate change–understood simply as an increase in the frequency & severity of climate shocks–increases vulnerability & makes it all the more important to find an integrated social protection solution Let’s look at some results from a simulation analysis done as part of the World Bank’s new report Shock Waves: Managing the Impacts of Climate Change on Poverty M.R. Carter Climate Change & Insurance
- 3. Base Case Climate Scenario: Cash Transfer vs. IntegratedSocial Protection Taking the same budget constraint, government first spends money offering a 50% insurance subsidy to anyone with less than 35 units of assets Residual budget spent on cash transfers as before M.R. Carter Climate Change & Insurance
- 4. Further Insights into Efficacy of Alternative Schemes Insurance subsidy leads to more even draw on budget Cheaper too (but note have targeting differences) Finally, see growth impacts of insurance (asset transfers are unanticipated, however) M.R. Carter Climate Change & Insurance
- 5. Shocks and Climate Change M.R. Carter Climate Change & Insurance
- 6. Policy Efficacy in the Face of Climate Change M.R. Carter Climate Change & Insurance
- 7. Conclusion Weather & other shocks may be an important driver of poverty Coping strategies of the vulnerable are partially effective in the short-term, but may fail in the longer-term as the consequences of reduced nutrition are transmitted through to the next generation Logic of contingent social protection for the vulnerable is clear: Prevent the growth of the number of destitute (which crowds the social protection budget & increases the poverty gap) Reduce the inter-generational transmission of poverty caused by asset smoothing Insurance can in principal serve at least a partially self-financed form of social protection for the vulnerable However, if climate change & risk become too severe, then even vulnerability-targeted program lose their efficacy. Moreover, pricing risk in the face of climate change becomes even more problematic Raises the stakes on finding a public reinsurance solution M.R. Carter Climate Change & Insurance