The 21st Century climate challenge

Box 4.5Risk insurance and adaptationCan farm insurance schemes be scaled up as part of an integrated Premium holders are paid in response to ‘trigger events’ such asstrategy for climate change adaptation and human development? delayed monsoons or abnormal rainfall. However, India’s CCIClimate change has given an impetus to a range of initiatives aimed currently has only 25,000 members, mainly wealthier producers.at extending access to micro-insurance and weather derivatives The participation of small-scale-farmers’ groups in thein the developing world. But there are diffi culties in developing design of insurance packages and the provision of collateralschemes that are accessible to the poor.through ‘social capital’ have produced some promising results.Attempts to expand market-based insurance have met with In Malawi, the World Bank and other donors have developed ansome success. In the Caribbean, for example, the Windward insurance programme involving private sector companies and theIsland’s Crop Insurance Programme has covered around 20 percent National Smallholder Farmers Association. The programme offersof the losses experienced by its members—caused by some 267 insurance for groundnut and maize, with payments triggered whenstorm events between 1998 and 2004 alone—providing a safety net rainfall falls below a specifi ed threshold determined by recordssufficient to get growers back on their feet.at meteorological stations. This ‘drought index insurance’ isHowever, as climate change increases the frequency and provided as part of an input loans package to groups of 20–30severity of droughts it will drive up the costs of insurance, pricing farmers, with payouts triggered if there is insuffi cient rain duringthe most vulnerable people out of the market. The fact that the the planting season (a ‘no-sow’ provision) or during three keymost vulnerable households are often poor precisely because they periods for crop development. The scheme has been successfuloperate in high-risk environments adds to the problem, because in its fi rst 2 years, motivating farmers to take the risk of usinginsurance providers will attach a risk premium to proposals from inputs to raise yields, but its spread is limited by Malawi’s sparsepeople living in such environments.network of meteorological stations.A further problem is that the commonest form of farm The World Bank and a number of donors are exploringinsurance—traditional crop insurance—can create perverse mechanisms for scaling up schemes of this kind, with additionalincentives, including the incentive to let crops fail during periods of pilot programmes in Ethiopia, Morocco, Nicaragua and Tunisia.low prices. Weather-indexing can address this problem. In India, the While there is undoubtedly scope for enhanced insurance coverageComprehensive Crop Insurance Scheme (CCI) insures farmers who using weather-indexing, there are limits to what private insuranceuse offi cial credit systems, charging a small premium and using markets can achieve for large vulnerable populations facingweather-indexes (rather than farm production) to determine claims. covariate risks linked to climate change.Source: DFID 2004; IRI 2007; Mechler, Linnerooth-Bayer and Peppiatt 2006; Mosley 2000; World Bank 2006f.4denuded hillsides of trees and left millionsof people in vulnerable slums. Governanceproblems, low levels of finance and a limiteddisaster response capacity left public agenciesunable to initiate rescue and recoveryoperations on the scale required. In theDominican Republic, national laws havelimited deforestation and the civil defenceforce has a staff 10 times larger than itscounterpart in Haiti to cater for a populationof similar size. 49Institutional and infrastructural capacity fordisaster risk management is not automaticallylinked to national wealth. Some countries havedemonstrated that much can be achieved even atlow levels of average income. Mozambique usedthe chastening experience of the 2000 floodsto strengthen institutional capacity in disastermanagement, putting in place more effectiveearly warning and response systems (box 4.6).Cuba provides another striking example of acountry that has successfully built infrastructurethat protects lives. Located at the centre ofone of the world’s most extreme tropical cyclonezones, the island is hit by several major stormsevery year. These cause extensive damage toproperty. However, loss of life and long-termdevelopment impacts are limited. The reason:an effective early warning system and a highlydeveloped civil defense infrastructure basedon community mobilization. Local authoritiesplay a vital role in relaying early warning informationand working with communities at risk.When Hurricane Wilma, then the most intensehurricane ever recorded in the Atlantic Basin,hit the island in 2005, over 640,000 people wereevacuated—and there was just one fatality. 50Simple comparisons across countriesprovide only a crude indicator of theeffectiveness of disaster risk managementmeasures. The impact of storms and floodsis conditioned not just by their intensity, butAdapting to the inevitable: national action and international cooperationHUMAN DEVELOPMENT REPORT 2007/2008 183