Index insurance and climate risk management: Addressing social equity

Abstract

MotivationFair distribution of benefits from index insurance matters. Lack of attention to social equity can reinforce inequalities and undermine the potential index insurance holds as a tool for climate risk management that is also pro-poor. PurposeThe aims are to: (i) examine social equity concerns raised by index insurance in the context of climate risk management; (ii) consider how greater attention can be given to social equity in index insurance initiatives; and (iii) reflect on the policy challenges raised by taking social equity into account as a mechanism for climate risk reduction. Approach and methodsThe article draws on learning from the CGIAR's Research Program on Climate Change, Agriculture and Food Security (CCAFS) and presents the cases of the Index Based Livelihoods Insurance (IBLI) andAgriculture and Climate Risk Enterprise Ltd. (ACRE) in East Africa. It proposes a framework for unpacking social equity related to equitable access, procedures, representation and distribution within index insurance schemes. FindingsSystematically addressing social equity raises hard policy choices for index insurance initiatives without straightforward solutions. Attention to how benefits and burdens of index insurance are distributed raises the unpalateable truth for development policy that the poorest members of rural society can be excluded. Nevertheless, a focus on social equity may open up opportunities to ensure index insurance is

Unpacking Barriers to Socially Inclusive Weather Index Insurance: Towards a Framework for Inclusion

“…The framework proposed in this paper represents a synthesis of the case study and literature review results. It also builds on the social equity assessment framework for index insurance [9] by identifying specific actions needed at each step in developing and implementing a WII product.…”

“…The treatment of target communities as homogeneous is a common weakness amongst WIIs [10,16,17], and many equity problems flow from this initial blindness to social differentiation and complexity. Informing WII design of contextual variables can be achieved in many ways, from group and individual discussions and interviews across the cross-section of male and female stakeholders, to more elaborate means, such as experimental games that can elicit clarity on diverse farmers' risk perceptions and preferences on types and levels of risk to be covered [9]. The key point, however, is that the actors driving WII invert their current approach by starting from an understanding of who really needs insurance and for what, rather than implementing largely pre-determined WII schemes.…”

“…Through their review of several large insurance schemes, Fisher at al. (2018) [9] make clear that with appropriate innovative approaches, marginal groups can be effectively reached. Moreover, as described below, these costs can be minimized if the right partnerships are identified.…”

“…This was the case in Bihar where a private seed company has volunteered to subsidize the premium of 200 additional farmers in 2019. [9] acknowledge there may be a moral argument that farmers should not be required to pay an insurance premium to adapt to climate risks, since the poor in developing countries are some of the most heavily impacted by climate change, although they contribute little to its causes).…”

“…The adoption of a narrow technocratic focus has, subject to some exceptions, missed out the most vulnerable [16,17], including underrepresented female farmers [18][19][20]. Fisher et al (2018:17) [9] succinctly capture these risks: "The allure of index insurance can mask issues of power, social inequality and differential impact in rural communities. The need to be cognizant of the danger of implicitly reinforcing inequality through the design and delivery of index insurance underlines how more consideration needs to be given to the way uptake of index insurance is shaped by existing inequalities and, in turn, how these inequalities contribute to differential development outcomes for smallholder farmers/pastoralists".…”