Index Insurance – Event Based, rather than Claims Based Climate and Disaster Insurance

One the major problems with disaster insurance is the disruption in infrastructure and government function makes it difficult to process specific claims information in a timely manner. As the delays in processing claims after the 2016 Baton Rouge flood illustrate, this is difficult even in developed countries. It becomes impossible in developing countries, making traditional insurance useless for insuring against disaster risk. Index insurance pays claims based based on the occurrence of a predefined index event, without proof of specific loss. This can include rainfall within a given time period for crop insurance, river or coastal flooding levels, seismic measures for earthquakes, etc. The policy pays off based on the occurrence and severity of the event, which can be monitored in real time. For example, at the individual level, a farmer with index based crop insurance will automatically get a payment if rainfall during the grown season falls below predefined levels. This eliminates the cost and infrastructure for claims management and individual risk assessment, allowing crop insurance to be provided to subsistence level farmers where the payments may only be a few dollars.

At the country level, the index insurance provider can monitor an event such as a hurricane in real time and pay claims to the country within days of the event. This provides money for immediate relief, which is critical in countries who limited infrastructure may have been incapacitated by the event. It also keeps the country from being captive of outside NGOs which might otherwise have undue power because they control the only available relief funding.

Index insurance can be paid for by a group of individuals, the country, or it can be a vehicle for international aid organizations to provide reliable and efficiently administered relief. The disadvantage of the index insurance is that it only provides coverage for the specific predefined events, it is not general disaster insurance. It also only provides relief if the event exceeds the predefined threshold – an event that is marginally below the threshold triggers for payouts. Lump-sum payments to the country may be diminished or lost because of corruption or incompetence.

Index Insurance Resources

Molly E Hellmuth et al., Index insurance and climate risk: prospects for development and disaster management. (2009)

Hazell, P. & Skees, J., 2006. Insuring against bad weather: Recent thinking. In Radhakrishna, Rokkam and Rao, , C. H. Hanumantha, ed. India in a Globalising World: Some Aspects of Macroeconomy, Agriculture, and Poverty. New Delhi.

Benjamin Collier et al., Weather index insurance and climate change: opportunities and challenges in lower income countries, 34 The Geneva Papers on Risk and Insurance Issues and Practice 401–424 (2009)

FAQ – Index-based livestock insurance

General Bibliography

Molly E Hellmuth et al., Index insurance and climate risk: prospects for development and disaster management. (2009)

Celine Herweijer et al., Adaptation to climate change: threats and opportunities for the insurance industry, 34 The Geneva Papers on Risk and Insurance-Issues and Practice 360–380 (2009)

Examining the decision-relevance of climate model information for the insurance industry

Insuring against bad weather: Recent thinking, in India in a Globalising World: Some Aspects of Macroeconomy, Agriculture, and Poverty

Emiliano Ramieri et al., Methods for assessing coastal vulnerability to climate change, European Environment Agency, European topic centre on climate change impacts, vulnerability and adaptation (2011)

Swenja Surminski & Delioma Oramas-Dorta, Flood insurance schemes and climate adaptation in developing countries, 7 International Journal of Disaster Risk Reduction 154–164 (2014)

Christopher B Field, Managing the risks of extreme events and disasters to advance climate change adaptation: special report of the intergovernmental panel on climate change (Cambridge University Press) (2012)

Sabrina Persaud, Eyes on Bangladesh’s disappearing coasts: proposed constitutional protections for coastal communities particularly vulnerable to climate change, 6 Journal of Sustainable Development Law and Policy (The) 52–82 (2016)

K Warner et al., Adaptation to Climate Change: Linking Disaster Risk Reduction and Insurance. A paper prepared for the United Nations International Strategy on Disaster Reduction (UNISDR), (2009)

Swenja Surminski, The role of insurance in reducing direct risk: the case of flood insurance, 7 International Review of Environmental and Resource Economics 241–278 (2014)

Joanne Linnerooth-Bayer & Reinhard Mechler, Insurance for assisting adaptation to climate change in developing countries: a proposed strategy, 6 Climate Policy 621–636 (2006)

Geneva Association & others, The insurance industry and climate change-Contribution to the global debate, 2 The Geneva Reports 1–152 (2009)

Christophe Béné, Social Protection and Climate Change, 42 IDS Bulletin 67–70 (2011)

Rachele Pierro & Bina Desai, Climate insurance for the poor: Challenges for targeting and participation, 39 IDS Bulletin 123–129 (2008)

Leigh Johnson, Index insurance and the articulation of risk-bearing subjects, 45 Environment and Planning A 2663–2681 (2013)

David S Biedenharn et al., Recent morphological evolution of the Lower Mississippi River, 34 Geomorphology 227–249 (2000)

O Pérez-Maqueo et al., Coastal disasters from the perspective of ecological economics, 63 Ecological Economics 273–284 (2007)

Benjamin Collier et al., Weather index insurance and climate change: opportunities and challenges in lower income countries, 34 The Geneva Papers on Risk and Insurance Issues and Practice 401–424 (2009)

Craig Bond Nicholas Burger Kate Anania Aaron Strong Sarah Weilant Stephanie Virgets Stephen Barnes, Economic Evaluation of Coastal Land Loss in Louisiana (2015)

Edward B Barbier, Valuing Ecosystem Services for Coastal Wetland Protection and Restoration: Progress and Challenges, 2 Resources 213–230 (2013)

Chapter 11 – Insects and Other Biological Evidence from Continental Regions , in Paleoclimatology (Third Edition) 377 – 404, http://www.sciencedirect.com/science/article/pii/B9780123869135000119

David Blake et al., Living with mortality: Longevity bonds and other mortality-linked securities, 12 British Actuarial Journal 153–197 (2006)

Simon Bell & Stephen Morse, Sustainability indicators: measuring the immeasurable? (Earthscan) (2008)

AR Brandt et al., Methane Leaks from North American Natural Gas Systems, 343 Science 733–735 (2014)

Erwann Michel-Kerjan et al., Catastrophe Financing for Governments, (2011)

S Kearney Michael & J C Alexis Riter, Inter-annual variability in Delaware Bay brackish marsh vegetation, USA, 19 Wetlands Ecology and Management (2011), C:$\backslash$epr$\backslash$Refs$\backslash$readcube$\backslash$Wetlands Ecology and Management 2011 Kearney M.pdf http://dx.doi.org/10.1007/s11273-011-9222-6

Nicole D. Peterson, Developing Climate Adaptation: The Intersection of Climate Research and Development Programmes in Index Insurance, 43 Development and Change 557–584 (2012)

 

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