To begin to address climate risk effectively, governments, insurers, banks and asset managers, infrastructure experts, and technical assistance and research firms need to be enlisted to work together. Addressing climate change adaptation to reduce risk before disasters hit is the best chance to improve the outcomes of climate risk events.
This is especially true for low-income and small island nations. For many of these nations, resilience efforts are simply out of reach. Insurance may mitigate some of the costs for citizens, but it is of limited benefit in adaptation. The bond markets focus on short durations. And it can be difficult for small countries to obtain even basic infrastructure financing.
Climate adaptation requires significant financing. Basic asset-liability management says that long-term projects should be matched with long-term investments while mitigating long-term risks—like climate change. Linking insurance directly to long-term climate adaptation bonds can help governments more effectively adapt to and manage the effects of climate change.
This article by Milliman’s Michael McCord of the MicroInsurance Centre at Milliman and Abhisheik Dhawan of the UN Capital Development Fund says that coming together to address climate change risks should begin before disaster strikes.
Ethiopia is a country prone to many climate risks, which particularly affect its majority rural population. To manage these agriculture-related climate risks, Ethiopian farmers respond by spending their savings, selling valuable assets at heavy discounts, and reducing consumption.
Until recently, insurers barely had any footprint in rural areas with smallholder farmers. In fact, 2014 data shows that less than 2% of Ethiopians were covered by any type of formal microinsurance product. Because insurance is an ex-post tool and not all risks are insurable, a holistic approach to dealing with climate risks is needed to help vulnerable communities become more resilient.
In this article, Milliman’s Mariah Mateo Sarpong and Mebrahtu Brhan Gebre present an example of a holistic risk management solution that the MicroInsurance Centre at Milliman developed for smallholder farmers in northern Ethiopia. The product illustrates Milliman’s Climate Resilience Initiative’s holistic approach to enhancing climate resilience in low-income communities.
Michael McCord, managing director of the MicroInsurance Centre at Milliman, recently spoke with A.M. BestTV at the International Insurance Society’s Global Insurance Forum, which was held in Singapore. In the interview, Michael discusses how important it is to understand what microinsurance clients need in order to provide them with the right risk management tools. He adds that insurers need to become more flexible and understand not just clients and products, but also the back office administration.
This Society of Actuaries literature review by Milliman consultants provides several perspectives on emerging technologies that influence the actuarial profession within the microinsurance industry. The review assembles a collection of publicly available articles, reports, presentations, books, blog posts, podcasts, videos, and other resources that actuaries and other interested stakeholders can reference. It also provides a foundation for understanding the evolving role of technology in microinsurance, as well as its potential impact on insurance and the actuarial profession.
Milliman worked in Shaanxi province in China to develop microinsurance and broader risk management solutions for rural, low-income populations as part of an International Fund for Agricultural Development-funded project.
As the team worked there, they had a number of questions about microinsurance in China, realizing that there is little known about it in the English-speaking world. How is microinsurance defined in China? What is the market like? Poverty in China is mainly concentrated in rural areas, where over 500 million people live. What role is microinsurance playing in achieving China’s target to eliminate rural poverty by 2020?
Milliman’s Mariah Mateo Sarpong and Queenie Chow recently sat down with associate professor Yi Yao, of the Department of Risk Management and Insurance at Peking University, to answer some of these questions. Professor Yao shared her thoughts on microinsurance in China, its link to rural development and poverty alleviation, and what the next 10 years might look like for the market.
To read the Q&A, click here. Also, to learn more about Milliman’s work with the International Fund for Agricultural Development, click here.
Microinsurance is part of the insurance continuum with risk-pooling products that feature pricing, terms, coverage, and distribution that are intentionally designed to be appropriate for low-income people. Milliman joined forces with the MicroInsurance Centre, an internationally recognized consulting firm and microinsurance thought leader, to generate greater access to these products worldwide.
Through product development, research, and advocacy services, Milliman and the MicroInsurance Centre are committed to protecting vulnerable populations against the risks that can lead people into an unending cycle of poverty: poor health, loss of crops or livestock, natural and human-made disasters, death and disability, and others. To achieve this aim, we are working with a wide range of clients, including government institutions, regulators, trade unions, nongovernmental organizations (NGOs), commercial insurers, bilateral and multilateral development agencies, foundations, and others.
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