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Climate change and financial adaptation in Africa. Investigating the impact of climate change on the robustness of index-based microinsurance in Malawi

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Abstract

This paper discusses the applicability of crop insurance for the case of Malawi and explores the potential impact of climate change on the viability of the Malawi weather insurance program making use of scenarios of climate change-induced variations in rainfall patterns. The analysis is important from a methodological and policy perspective. By combining catastrophe insurance modeling with climate modeling, the methodology demonstrates the feasibility, albeit with large uncertainties, of estimating the effects of climate variability and climate change on the near- and long-term future of microinsurance schemes serving the poor. By providing a model-based estimate of insurance back-up capital necessary to avoid ruin under climate variability and climate change, along with the associated uncertainties and data limitations, this methodology can quantitatively demonstrate the need for financial assistance to protect micro-insurance pools against climate-induced insolvency. This is of major concern to donors, NGOs and others supporting these innovative systems, those actually at-risk and insurers providing insurance. A quantitative estimate of the additional burden that climate change imposes on weather insurance for poor regions is of interest to organizations funding adaptation. Further, by linking catastrophe modeling to regionalized climate modeling, the analysis identifies key modeling inputs necessary as well as important constraints. We end with a discussion of the opportunities and limits to similar modeling and weather predictability for Sub-Saharan Africa beyond the case of Malawi.

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Notes

  1. Based on personal communication with H. Ibarra and World Bank (2005).

  2. The following trigger events are set in the 2006 contracts: Upper reps. lower claim triggers (in mm) for each phase were for phase 1: 35 and 30, for phase 2: 35 and 30, and for phase 3 220 and 20.

  3. Gamma distributions are standardly used for describing rainfall totals (see von Storch and Zwiers 1999)

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Acknowledgments

Financial support under a grant from the Bank-Netherlands Partnership Program for the project “Institutions for Climate Change Adaptation” of the World Bank’s Development Research Group is gratefully acknowledged. We thank Alexander Lotsch for comments provided and project management, as well as Pablo Suarez and Joanne Bayer for comments received.

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  1. IIASA, Laxenburg, Austria

    Stefan Hochrainer, Reinhard Mechler & Georg Pflug

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  1. Stefan Hochrainer
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  2. Reinhard Mechler
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  3. Georg Pflug
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Correspondence to Reinhard Mechler.

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Hochrainer, S., Mechler, R. & Pflug, G. Climate change and financial adaptation in Africa. Investigating the impact of climate change on the robustness of index-based microinsurance in Malawi. Mitig Adapt Strateg Glob Change 14, 231–250 (2009). https://doi.org/10.1007/s11027-008-9162-5

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