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Daron J.D.,University of Cape Town | Stainforth D.A.,The Grantham Research Institute on Climate Change and the Environment | Stainforth D.A.,University of Warwick | Stainforth D.A.,University of Oxford
Climate Risk Management | Year: 2014

Weather index insurance is being offered to low-income farmers in developing countries as an alternative to traditional multi-peril crop insurance. There is widespread support for index insurance as a means of climate change adaptation but whether or not these products are themselves resilient to climate change has not been well studied. Given climate variability and climate change, an over-reliance on historical climate observations to guide the design of such products can result in premiums which mislead policyholders and insurers alike, about the magnitude of underlying risks. Here, a method to incorporate different sources of climate data into the product design phase is presented. Bayesian Networks are constructed to demonstrate how insurers can assess the product viability from a climate perspective, using past observations and simulations of future climate. Sensitivity analyses illustrate the dependence of pricing decisions on both the choice of information, and the method for incorporating such data. The methods and their sensitivities are illustrated using a case study analysing the provision of index-based crop insurance in Kolhapur, India. We expose the benefits and limitations of the Bayesian Network approach, weather index insurance as an adaptation measure and climate simulations as a source of quantitative predictive information. Current climate model output is shown to be of limited value and difficult to use by index insurance practitioners. The method presented, however, is shown to be an effective tool for testing pricing assumptions and could feasibly be employed in the future to incorporate multiple sources of climate data. © 2014 The Authors.

Surminski S.,The Grantham Research Institute on Climate Change and the Environment | Aerts J.C.J.H.,VU University Amsterdam | Botzen W.J.W.,VU University Amsterdam | Hudson P.,VU University Amsterdam | And 4 more authors.
Natural Hazards | Year: 2015

Flood insurance differs widely in scope and form across Europe. Against the backdrop of rising flood losses, a debate about the role of EU policy in shaping the future of this compensation mechanism is led by policy-makers and industry. While the question of supply and demand is at the core of the debate, we argue that another key dimension is often overlooked: how to use insurance as a lever for risk reduction and prevention efforts. We investigate whether and how current EU policies influence flood insurance and how this interplays with the national policy level. First, we consider affordability, availability, and risk reduction linkages in an EU context, and then gather insights from two contrasting cases of flood insurance: the UK, where flood insurance provision is widely available, but subject to ongoing reform; and the Netherlands, where several efforts to introduce broader flood insurance coverage have failed. This is followed by an analysis of how EU policy could help address the challenges at member state level, based on a stakeholder workshop discussion. We conclude that there is wide agreement that a complete harmonization of flood insurance offering across the EU is unlikely to be effective. However, there is clear scope for EU policymakers to play a greater role in linking risk transfer and prevention, beyond existing channels, to ensure an integrated approach to flood risk management across the EU. © 2015, Springer Science+Business Media Dordrecht.

Helgeson J.F.,The London School of Economics and Political Science | Helgeson J.F.,The Grantham Research Institute on Climate Change and the Environment | Dietz S.,The London School of Economics and Political Science | Dietz S.,The Grantham Research Institute on Climate Change and the Environment | Hochrainer-Stigler S.,International Institute For Applied Systems Analysis
Ecology and Society | Year: 2013

When a natural disaster hits, the affected households try to cope with its impacts. A variety of coping strategies, from reducing current consumption to disposing of productive assets, may be employed. The latter strategies are especially worrisome because they may reduce the capacity of the household to generate income in the future, possibly leading to chronic poverty. We used the results of a household survey in rural Uganda to ask, first, what coping strategies would tend to be employed in the event of a weather disaster, second, given that multiple strategies can be chosen, in what combinations would they tend to be employed, and, third, given that asset-liquidation strategies can be particularly harmful for the future income prospects of households, what determines their uptake? Our survey is one of the largest of its kind, containing over 3000 observations garnered by local workers using smartphone technology. We found that in this rural sample, by far, the most frequently reported choice would be to sell livestock. This is rather striking because asset-based theories would predict more reliance on strategies like eating and spending less today, which avoid disposal of productive assets. It may well be that livestock is held as a form of liquid savings to, among other things, help bounce back from a weather disaster. Although, we did find that other strategies that might undermine future prospects were avoided, notably selling land or the home and disrupting the children's education. Our econometric analysis revealed a fairly rich set of determinants of different subsets of coping strategies. Perhaps most notably, households with a more educated head are much less likely to choose coping strategies involving taking their own children out of education. © 2013 by the author(s).

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