Heat insurance offers lifeline to poorest workers
A new form of disaster assistance is taking off across the developing world. Gloria Dickie, Simon Jessop and Shivam Patel report for Reuters.
Abright sun beat down on the sprawling Indian market where Kamlaben Ashokbhai Patni sat worrying about the brass jewellery on display in her wooden stall.
When the heat rises, the metal blackens. Plastic pearls become unglued.
‘‘The colour of the jewel starts to fade as it becomes hotter, making it worthless and akin to junk,’’ the 56yearold mother of four, said recently when temperatures simmered around 38degC in the western city of Ahmedabad.
Climate change drove heat in the city to a recordbreaking 48degC in 2016. Last year, it peaked at nearly 46degC.
Such high temperatures could mean a hit to business. But Patni is now among 21,000 selfemployed women in Gujarat state enrolled in one of the world’s first insurance schemes for extreme heat, launched last month by nonprofit ArshtRock Foundation Resilience Centre in partnership with microinsurance startup Blue Marble and a trade union.
If temperatures climb high enough above historical averages and linger there for three days, she will receive a small payout to help cope and compensate lost income.
While traditional insurance can take months to pay, with socalled ‘‘parametric’’ insurance there is no need to prove losses. It can pay within days of a trigger being reached — a predetermined threshold beyond which conditions are considered extreme. Payments can be set to things like wind speeds or rainfall.
This form of disaster assistance is on the rise across the developing world, as vulnerable communities are hammered by worsening drought, storms and heatwaves.
But with climate change happening faster and causing more damage than scientists had predicted and too little money being spent on protecting populations; such projects could struggle over the longer term, according to more than 20 industry experts consulted by Reuters.
Reinsurer Swiss Re reported that sales of parametric product jumped 40% between 2021 and August 2022. Insurance analysts at Allied Market Research estimate the market, valued at $US11.7 billion
($NZ19.24 billion) in 2021, could reach $US29.3 billion by 2031.
At annual climate talks in Egypt last year, nonprofits urged richer nations to help finance parametric insurance as a way of compensating victims of worsening weather extremes.
It was still somewhat niche ‘‘but it’s growing,’’ Ekhosuehi Iyahen, secretarygeneral of the Insurance Development Forum an industryled group that promoted insurance for nontraditional markets, said.
The past year has seen new products rolled out across Latin America, Africa, and AsiaPacific. The United Nations Capital Development Fund, for example, recently developed parametric policies for
Vanuatu, Tonga, and Fiji covering cyclone damage.
Limits
While parametric insurance has been around since the 1990s, recent advances in satellite technologies have opened up areas that were previously difficult to assess for damage, such as distant islands or mountain communities.
However, some industry experts question whether the products will be financially viable in the long run, in part because of toofrequent payouts due to climate risks escalating faster than predicted less than a decade ago. This could drive up premiums.
Some schemes have already fizzled. The Kenya Livestock Insurance programme, for example, supported pastoralists hit by drought with 1.2 billion Kenyan shillings
($NZ14.2 million) in payouts between 2015 and 2021. But with just 1.1 billion shillings collected in premiums, the scheme operated at a loss and was replaced this year with another that offered other financial savings products alongside insurance.
At the moment, insurance schemes in the developing world are largely subsided by nonprofit groups, national governments, or wealthy countries.
Many of the programmes aspire to have policyholders eventually cover more if not all of the premium. But worsening extremes could make that difficult, said London School of Economics resilience researcher Viktor Roezer, who noted the programmes could just become a ‘‘different channel for aid’’.
Interviews with more than a dozen groups involved in such insurance found that most products launched in the last five years had already paid out.
The products needed to ‘‘geographically diversify — we have to have schemes spread out in different areas’’ to dilute the risk, Jaime de Pinies, chief executive officer of the Blue Marble group that developed the Gujarat heat programme, as well as others in Colombia,
Zimbabwe and Mozambique, said.
Adapt
One way to avoid constant payouts, industry analysts said, was for governments to implement better strategies to defend against weather extremes, for example by planting crops more resilient to drought or building cooler homes to protect against rising heat, which would slash losses. This could allow insurers to set triggers higher.
‘‘The beauty of the parametric is that it pays so quickly and it’s incredibly flexible,’’ said Kathy Baughman McLeod, director of the ArshtRock Foundation Resilience Centre which covers the $US10.30 per person premium in Gujarat.
‘‘But it needs to be paired with actions or tools that reduce the risk.’’
Investment in boosting resilience remains marginal in most developing economies, with financing promised by richer countries not yet fully materialising.
Donor nations mobilised just $US29 billion in 2020 to help poorer countries adapt to a warmer world — far below the
$US340 billion estimated by the United Nations Environment Programme to be needed each year by 2030.
‘‘In most cases, there is zero adaptation spend,’’ chief executive officer Jonathan Gonzales of parametric startup Raincoat, which has deployed five projects in Colombia, Mexico, Jamaica and Puerto Rico, said.
Heat impacts
Across the world, heatwaves that once had a 1in10 chance of occurring in any given year prior to the industrial revolution are now nearly three times as likely, and 1.2degC hotter, according to a 2022 study in the journal Environmental Research Letters.
Scientists expect things to get worse, with such heatwaves becoming nearly six times as likely if greenhouse gas emissions continue unabated and the world reaches 2degC of warming, the study found.
In the case of the Gujarat heat scheme, insured by ICICI Lombard with the Self Employed Women’s Association (SEWA) as the group policyholder, the calculation determining the trigger varies across five districts. It is based on temperature expectations from historical trends over six 10day assessment cycles.
In Ahmedabad, for example, payouts occur when temperatures add up to between 134degC and 138degC over the course of three days, assessed using satellite data. The policy can pay out multiple times, to a maximum of $US85.
‘‘For vulnerable women on the margins, enduring extreme temperatures for three days directly amplifies the chances of sickness or death,’’ Sahil
Hebbar, a physician attending to the women in SEWA who have jobs in construction, rubbish collecting and shipbreaking, said.
Insurance payouts allow them to buy things like gloves to protect their hands from scorchinghot metal tools, or fans to stay cool and avoid heat exhaustion.
Had the insurance scheme been in place last year, it would have led to averaged payouts of $US28 per person, said Blue Marble’s de Pinies.
Sitting with her jewellery in the market, Patni said if temperatures climbed higher she would put payout money towards medicine to help with heatrelated headaches.
‘‘I spend 15 hours at the stall everyday . . . in summers it becomes difficult to stay here.’’
Across the city, Heena Kamlesh Parmar (26) works as a daily wage labourer at a construction site where she is building a highrise residential complex, earning 350 rupees ($NZ6.96) per day.
The heat made her want to take a break from hauling bricks to rest in shade, but she feared that could lead to a pay cut.
If she received a payout, Parmar said she would ‘‘use it to buy things for my house, things to eat’’.