Investigating the Impact of Climate Change on the Robustness of Index-Based Microinsurance in Malawi

Abstract

This analysis 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 change on the near and long-term future of microinsurance schemes serving the poor. By providing a model-based estimate of the incremental role of climate change, along with the associated uncertainties, this methodology can quantitatively demonstrate the need for financial assistance to protect micro-insurance pools against climate-change induced insolvency. This is of major concern to donors, nongovernmental organizations, and others supporting these innovative systems; those actually at-risk; and insurers. A quantitative estimate of the additional burden that climate change imposes on weather insurance for poor regions is of interest to organizations funding adaptation.

Keywords: Climate Change, Debt Markets, HazardRisk Management, Banks & Banking Reform