Evidence of demand for microinsurance for copingand adaptation to weather extremes in the Caribbean

Jonathan G. Lashley & Koko Warner

Received: 31 January 2013 /Accepted: 31 August 2013# Springer Science+Business Media Dordrecht 2013

Abstract In regions highly exposed to climatic variability and longer-term climate change,vulnerable communities undertake a number of measures to manage the effects of extremeweather events. Results from a survey of 1059 low income persons in agriculture and tourism inBelize, Grenada, Jamaica and St. Lucia point to a need for a new balance to reduce risk, transferrisk, and effectively prepare for climatic stressors. This corroborates the findings from the IPCCSpecial Report on Managing the Risks of Extreme Events and Disasters to Advance ClimateChange Adaption (SREX). This article seeks to bolster limited evidence to understand theconsequences of these measures, and assess whether financial risk management tools couldcomplement current asset-depleting approaches: The results reveal that the dominant responsesto managing extreme weather events included: using savings (36 %), borrowing (12 %) andgovernment assistance (9 %). However, one-tenth of the sample is at risk from ‘doing nothing’,which can contribute to loss of productive capacity and income sources, loss of access tofinance, depletion of assets, health problems and social isolation. Study respondents indicated aneed for alternative financial risk management approaches. The results also indicate a moderateexplicit demand for weather-related microinsurance. Overall the results reveal that wherevulnerability and exposure to extreme weather events are high, and capacity is low, a rethinkingof risk management measures is needed to reduce loss and damage for low-income people.

1 Introduction and context

To date, limited empirical evidence has been gathered to understand the consequences ofinadequate coping measures for extreme weather events in small island states (Murray et al.

Climatic ChangeDOI 10.1007/s10584-013-0922-1

This article is part of a Special Issue on "Advancing Climate Change Adaptation and Risk Management"edited by Joern Birkmann and Reinhard Mechler.

Electronic supplementary material The online version of this article (doi:10.1007/s10584-013-0922-1)contains supplementary material, which is available to authorized users.

J. G. LashleySir Arthur Lewis Institute of Social and Economic Studies (SALISES), University of the West Indies,Cave Hill Campus, West Indies, Barbadose-mail: jlashley@caribsurf.comURL: www.cavehill.uwi.edu/salises

K. Warner (*)Munich Climate Insurance Initiative and Section Head, Environmental Migration, Social Resilience, andAdaptation, United Nations University, Institute for Environment and Human Security (UNU-EHS, UNCampus, Hermann-Ehlerstr. 10, 53113 Bonn, Germanye-mail: warner@ehs.unu.eduURL: www.ehs.unu.edu

2012). Further, the literature has revealed debates about the degree to which financial riskmanagement tools could complement current risk management approaches for low incomehouseholds (Carter 2012; Deblon and Loewe 2012). The research results presented here seekto add to the existing evidence base and contribute to the debate on the potential and limitations offinancial risk management tools in sustaining the livelihoods of low income households.

To better understand what low income households do when weather calamities occur, asurvey of 1059 low income persons in agriculture and tourism in Belize, Grenada, Jamaica andSt. Lucia was undertaken. The results illustrate the consequences of excess wind and rain on thelivelihoods of low-income people and how communities cope with these changes. Thisevidence from the Caribbean provides insights into SREX findings which indicate that forregions highly exposed to climatic variability and longer-term climate change, vulnerablecommunities undertake a number of measures to cope1 with loss and damage including pre-disaster financing arrangements such as remittances, borrowing from moneylenders, interna-tional assistance, etc. (Cutter et al. 2012).

The rest of the paper outlines the effect of extreme weather on the region and details theresearch process and results as they relate to the implicit need, and explicit demand, foralternative financial risk management approaches in the Caribbean.

2 Loss and damage related to weather extremes in Caribbean SIDS

Small island developing states (SIDS) in the Caribbean are vulnerable on a number of levels. Ineconomic terms these small states suffer from high levels of debt, a lack of economic diversifica-tion, existence on the periphery of the global economic system, intense competition from globaltrade liberalization, reduction in preferential market access, weak export capacity and rising tradedeficits (Lopez-Marrero and Wisner 2012; Cumberbatch 2010; Kelman and West 2009; Pellingand Uitto 2001). This situation has resulted in low growth rates, which average below 2.5 % overthe period 2000 to 2011, and low levels of GDP per capita, as shown in Table 1.

In addition, and perhaps as a consequence of economic marginalization, these states alsosuffer from a variety of social challenges including: high levels of poverty with an average of24 % and a high of 42 % in Belize (see Table 1), urbanisation, gender inequities, pollution,HIV/AIDS, brain drain, illicit drug use and rising crime, which all present severe challengesto human development in the region (Lopez-Marrero and Wisner 2012; Cumberbatch 2010;Kelman and West 2009; Pelling and Uitto 2001). This situation is further exacerbated bytopography, geographic location, and population concentration in large exposed coastalareas (Taylor et al. 2012; Lopez-Marrero and Wisner 2012) which make Caribbean SIDSvulnerable to sea level rise, invasive species, ocean acidification, changing rainfall patterns,and increased temperatures (Mercer et al. 2012; Taylor et al. 2012; Kelman and West 2009;Murray et al. 2012; Mimura et al. 2007). As the IPCC (Mimura et al. 2007) concluded,“small islands, whether located in the tropics or higher latitudes, have characteristics whichmake them especially vulnerable to the effects of climate change, sea level rise, and extremeevents (very high confidence).”

1 The IPCC (Cardona et al. 2012) offers four sets of actions involved to cope with extreme events includingex-ante measures: “risk identification (involving individual perception, evaluation of risk, and social inter-pretation) 2) Risk reduction (involving prevention and mitigation of hazard or vulnerability) 3) Risk transfer(related to financial protection and in public investment)” and ex post measure “4) Disaster management(across the phases of preparedness, warnings, response, rehabilitation, and reconstruction after disasters).”

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As an example of the manner in which these environmental hazards have presentedthemselves in recent years, between 2002 and 2007 Jamaica experienced five hurricanes(including Ivan and Emily), two storms and a seven-month drought (Campbell and Beckford2009). Hurricane Ivan devastated Grenada in 2004 and Hurricane Emily made landfall in 2005while recovery efforts from Ivan were still ongoing (Kairi Consultants Limited 2008). ForBelize, in 2010, Hurricane Richard caused severe wind damage to housing and agriculture, withmore than half of the total damage to the economy being in the agricultural sector (Tzul 2010).

For the future, the news is not encouraging. Bueno et al. (2008) estimate the costs of climatechange for the Caribbean as nearly US$6 billion per year by 2050, and the decline of coastaltourism by 16% by 2080 due to shrinking beaches. In addition, and as a more immediate effect,Crowards (2005) notes that in the year of a disaster, tourist arrivals drop by 2.8 % with areduction of approximately 13 % in the growth rate. While it is noted that growth returns insubsequent years, on average it does not return to its pre-disaster levels until 3 years later.

Rasmussen (2004), looking specifically at the Organisation of Eastern Caribbean States(OECS), estimates that damage from hurricanes, which hit approximately every 2.5 years,costs approximately 2 % of the affected country’s GDP. In controlling for land mass,Rasmussen (2004) suggests that the OECS is one of the most disaster prone regions in theworld, being 12 times more exposed than the average. As this information demonstrates,climate change and extreme weather have a dramatically negative effect on the Caribbeanregion, a region limited in its capacity to cope with such attacks on the people’s livelihoods,2

and highly sensitive to climate change (Taylor et al. 2012).This economic-social-environmental troika presents a real challenge to the livelihoods of

low income persons in the Caribbean (Lopez-Marrero and Wisner 2012; Dulal et al. 2009;Read 2010). The advent of environmental hazards, by their very unpredictable nature,present a particular challenge to governments, communities and individual households asthey frequently lack the capacity (lack of financial means, political will concentrated onother development priorities, and lack of technology and technical expertise) to sufficientlymanage the covariant risk presented by droughts, floods and hurricanes (Kelman and West2009; Kelman et al. 2011; Pelling and Uitto 2001; Angelucci and Conforti 2010; Campbelland Beckford 2009; Gamble et al. 2010; Lopez-Marrero 2010; Mycoo 2011) .

3 Methods3

The main objective of the research was to assess the level of demand for weather-relatedinsurance in the Caribbean among low income persons in agriculture and tourism, bothmicroentrepreneurs and the employed, in order to understand their needs in managing loss, aswell as to inform policy discussion and product design and implementation of weather-relatedmicroinsurance4 in the region. In seeking to address these objectives, the project methodologyinvolved three main components: a literature review on background issues in the Caribbeanrelated to climate change (extreme weather events, poverty, coping mechanisms and

2 Fiscal imbalances and high debt levels curtail the ability of government to deal with the aftermath of naturaldisasters (Lopez-Marrero and Wisner 2012).3 Please see the supplementary material for a full explanation of the methods used.4 Microfinancial services refer to microsavings, microinsurance, remittances and transfer payments. Althoughmicrofinance in the region is widely defined as microcredit to microentrepreneurs, other microfinancialservices do exist, especially related to savings. However, these services are widely ingrained in the mainstreamfinancial sector and are not considered ‘microfinance’, although by definition some are (Lashley 2010).

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microfinance); a demand survey of 1,059 low income persons in agriculture and tourism inBelize, Grenada, Jamaica and St. Lucia in order to assess coping mechanisms and the implicit(need) and explicit demand for weather-related microinsurance; and interviews with financialinstitutions and representative organizations to assess issues related to implementation.

A non-random approach was utilized given the absence of a population frame ofmicroentrepreneurs and low income employees in agriculture and tourism in the region. Therationale for the utilisation of these groups was that they were considered the most at risk of lossof goods, customers or employment due to extreme weather. The non-random approach utilisedinvolved the identification of geographic locations where such sampling elements would operatetheir businesses or undertake employment such as beaches, markets and tourist attractions. Follow-ing the identification of geographic locations, convenience sampling was undertaken in order toobtain the sample targets. The overall sample target was 1100 individuals, 275 in each of the fourcountries. In total, 1059 usable responses were received representing 96 % of the sample target.

4 Sample characteristics

The sample survey of low income persons in the four countries studied provided a range ofrespondents by position in their household, educational levels, sex and sector of employ-ment. Overall, 64 % of respondents were the head of their household, 52 % had completed atleast a secondary education; 61 % was male; and the majority were between the ages of 30and 49 years of age (53.6 %). In addition, the average household was operating at 113 % ofthe poverty line; id est. respondents were existing at 13 % above the poverty line and wouldtherefore be considered vulnerable by regional standards.5

5 The accepted vulnerability threshold in the region is 125 % of the poverty line.

Table 1 Country statistics for the Caribbean (various sourcesa)

Country Average GDP Growth(2000–2011) (%)

GDP per Capita(2012) (US$)

Individual PovertyRate (%) (year)

Antigua and Barbuda 1.44 13,428.64 18.3 (2007)b

The Bahamas 0.92 22,832.91 9.3 (2004)

Barbados 1.02 16,151.70 19.3 (2010)b

Belize 4.53 4,535.50 42.0 (2010)b

Dominica 1.84 7,022.04 28.8 (2010)b

Grenada 2.23 7,496.46 37.7 (2008)b

Guyana 2.36 3,596.43 na

Jamaica 0.77 5,540.67 16.5 (2009)

St. Kitts and Nevis 2.38 12,803.52 21.8 (2009)b

St. Lucia 1.89 7,276.09 28.8 (2007)b

St. Vincent and the Grenadines 2.43 6,489.25 33.1 (2008)b

Suriname 4.48 8,685.81 20.0 (2002)

Trinidad and Tobago 5.24 19,018.21 17.0 (2007)

a GDP Growth and GDP per Capita data obtained from IMF, World Economic Outlook Database, August 2013

Individual Poverty Data from CIAWorld Factbook unless otherwise statedb Indicates poverty data from individual country poverty assessments available from www.caribank.org

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Overall, nearly 70 % of respondents utilised self-employment as a livelihood source, albeitinformally, with 61 % of businesses not registered. In relation to type of employment by sex,there was a clear division seen with males dominating in primary sectors (agriculture andfisheries) and transport (taxi driving), and females dominating in vending and hospitality(catering and hotel/restaurants) (see Table 2).

In relation to the vulnerability of respondents to shocks in agriculture or tourism, 49 %indicated that they had a high/very high dependence on agriculture, 41% indicated that they hada high/very high dependence on tourists to their country, and 14 % indicated that they werehighly dependent on both sectors.

5 Extreme weather, coping mechanisms and implicit demand for financial riskmanagement

The results of the sample survey revealed a close association between the perception of riskexposure to various disaster scenarios and actual exposure. In terms of perceptions, thehighest perception of risk exposure was the potential of loss of customers due to a storm(47 %) followed by loss of employment due to extreme weather (43 %). This was one of thefew areas where sectoral differences were seen6 where those in agriculture and fisheriesperceived loss of customers to be less of a risk than those in tourism (41 % versus 50 %respectively) and loss of employment to be more of a risk (50 % versus 40 % respectively).House damage due to high winds (28 %) and house damage due to flooding (16 %) were thenext highest ranked scenarios and there were no significant differences by sector. Indemonstrating the link between the perceptions of risk exposure and actual experience,38 % of respondents actually experienced loss of customers or employment from an extremeweather event in the last 10 years and 26 % actually experienced house damage from highwinds or flooding in the last 10 years. Overall, in demonstrating the at-risk nature of thesepopulations and actual experiences, 42 % of the sample had experienced some loss due toextreme weather since 2000, with some respondents experiencing multiple losses.

Of interest here are the coping mechanisms actually utilised by the respondents in the aftermathof extreme weather events (see Table 3). Overall, the dominant response, as seen with previousstudies in the region (Lashley 2010), was the use of savings which accounted for 36% of responses,with those in agriculture and fisheries less likely to use savings (34 % versus 41 % for tourism) andmore likely to use formal credit (8 % versus 3 % for tourism). The use of savings was followed by‘not repairing or replacing’ (23 %), borrowing (12 %) and government assistance (9 %).

The utilisation of savings and credit as pseudo-insurance is a matter of concern as these copingmechanisms affect income and consumption (Heltberg et al. 2012), and preclude the use of thesefunds for more productive purposes such as investment in education or enterprise, investmentswhich can assist in sustainable poverty alleviation for low income individuals. These copingmechanisms (use of savings, borrowing and government assistance) are categorised here as mediumlevel stressors,7 inferred from the survey results which draw on the work of Watts (1983),Montgomery (1996), Cohen and Sebstad (2005) and Sebstad et al. (2006).

6 The survey data was analysed to determine if there were any differences by sector (Agriculture versusTourism). Limited differences were seen and where relevant these differences are noted in the text.7 The classification of stressor levels is adapted from Watts (1983) who ranked coping mechanisms accordingto the degree of reversibility and level of commitment of household resources; this classification was laterrefined by Montgomery (1996) to categorise coping mechanisms as low, medium and high depending on thelevel of reversibility and level of commitment of household resources. Sebstad et al. (2006) and Cohen andSebstad (2005) advanced the classification with specific reference to the demand for microinsurance.

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In addition to these coping mechanisms, of concern from the results were respondents‘not repairing or replacing’, doing nothing, not knowing what to do, or ‘waiting’. Theresults suggest that approximately 11 % of the entire sample (32.5 % of those experiencingan event) was at risk from not countering any of the adverse effects of these events. Thisinclination to not repair/replace, wait or do nothing, which are categorised by inference ashigh level stressors, have longer terms impacts similar to those for other high level stressors

Table 3 Coping mechanisms and stressor levels (Adapted from Sebstad, Cohen and McGuinness, 2006;Cohen and Sebstad 2005; Montgomery 1996) (% of respondents)

Coping Mechanism Grenada (%) St. Lucia (%) Jamaica (%) Belize (%) Stressor Level

Insurance Payout 4.8 1.5 2.9 8.6 Low

Used Savings 45.7 96.2 65.4 34.5 Medium

Used Remittances 3.8 3.1 9.6 1.7 Mediuma

Found another job 10.5 6.1 0.0 12.1 Medium

Sold possessions 1.9 1.5 0.0 13.8 High

Government Assistance 34.3 8.4 1.9 25.9 Mediuma

Borrowed (informal) 7.6 10.7 16.3 13.8 Medium

Borrowed (formal) 7.6 10.7 0.0 36.2 Medium

Did not repair/replace 22.9 59.5 48.1 24.1 Higha

Other (includes ‘waiting’) 9.5 0.8 51.9 6.9 Higha

TOTAL b 148.6 198.5 196.1 177.6 –

a These coping mechanisms were not included in the classifications used in the source literature. The authorshave inferred these stressor levels from depending on the level of commitment of household resources anddegree of reversibility as well reference to similarities to other coping mechanismsb Totals do not sum to 100 % as multiple responses were allowed

For coping mechanisms which were not included in the source literature and which were assigned stressorlevels, the rationale was as follows:

• Use of remittances (medium stressor): considered as equivalent to the use of savings or informal borrowing

• Government assistance (medium stressor): considered as equivalent of in-kind borrowing. The addedconsequence of reinforcing a level of dependency was also considered as support for this medium stressorcategorisation

• Not repairing or replacing/waiting/doing nothing (high stressor): the attached degradation of assets wasconsidered as equivalent to selling possessions or depleting assets which have further longer term conse-quences such as loss of productive capacity or access to finance, health risks and social isolation

Table 2 Type of employment by sex (%)

Main Job Males (%) Female (%) Total (%)

Agriculture 20.8 13.7 18.0

Fisheries 18.6 3.1 12.5

Vendor 12.9 43.9 25.1

Catering 4.7 8.0 6.0

Hotel/Restaurant Worker 4.8 11.1 7.4

Taxi 17.0 0.5 10.5

General Services/Other 21.1 19.9 20.5

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such as: loss of productive capacity, loss of income sources, further depletion of assets, lossof access to finance, untreated medical issues and social isolation.

It is apparent from the evidence that the actual coping mechanisms being utilised areinefficient given the resulting detrimental effects which include depletion and degradation ofalready scarce resources, indebtedness, dependency and social and health problems. Survey andinterview respondents said they would repair, spare their life savings, get back to work sooner,and make necessary investments in health and education if they had alternative forms of riskfinance like insurance when an extreme whether event occurs. This suggests an implicit needfor alternative coping mechanisms for low income persons in the Caribbean. One such financialrisk management tool that can assist is the use of weather-related microinsurance.

6 Demand for weather-related microinsurance in the Caribbean

While the preceding analysis of the survey results revealed a distinct need for alternativecoping mechanisms for low income individuals in the region, the actual explicit demand forweather-related microinsurance can only be considered moderate. In this case the productwas described to the respondent as a weather-related policy with a premium of US$7.50 anda payout of approximately US$100 per policy in the event of a severe hurricane or extremerainfall. Respondents were also informed that no post-event assessment was required andthat they could purchase up to 10 policies depending on their needs; the median demand inthis case was two (2) policies or US$200 in coverage.

Overall, 23 % exhibited a high/very high demand for the product, while 33 % indicated amoderate level of demand (Table 4); there were limited differences in demand by sector.8

In seeking to understand the moderate demand exhibited, other results from the samplesurvey provide some insights in relation to reasons for not having insurance and generalviews on insurance. For the 62 % of the sample without insurance, multiple reasons weregiven including: the cost of premiums (44 %), lack of trust in insurance companies (27 %),having never considered insurance (26 %), a lack of need for insurance (25 %) and a lack ofknowledge of insurance (22 %). The issue of lack of trust was also exhibited in 37 % of thesample disagreeing that insurance companies can be trusted to pay out what promised. Theseresponses were consistent across respondents regardless of sector of affiliation.

With these pre-existing views on insurance by a large proportion of the sample, the lackof explicit demand for weather-related insurance is perhaps not surprising and revolvesaround the issues of cost, trust, perceived need and knowledge. The issue of costs is perhaps

8 Moderate to high demand for the insurance product was 50.9 % for those in Agriculture/Fisheries versus50.2 % for those in Tourism.

Table 4 Explicit demand levels for weather-related microinsurance in the Caribbean (%)

Demand Level Grenada (%) St. Lucia (%) Jamaica (%) Belize (%) Average (%)

None 16.2 16.3 27.3 18.5 19.6

Very low 11.0 8.8 12.9 12.4 11.3

Low 15.8 15.0 8.3 11.2 12.6

Moderate 38.6 31.3 22.3 40.6 33.2

High 14.3 24.6 16.3 14.9 17.4

Very high 4.0 4.2 12.9 2.4 6.0

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the easiest to address here as respondents indicated that the average expected payout fromthe stated premium (US$7.50) should be US$130 rather that the stated payout of US$100.This result provides a basis from which the issue of cost can be addressed in the design of aninsurance product. However, it is perhaps the other three points (trust, perceived need andknowledge) that present the greatest barriers to the successful introduction of alternativefinancial risk management tools in the region. In drawing lessons from other elements of thesurvey in addressing trust, respondents indicated a preference for conducting their financialaffairs with domestically-owned commercial banks and credit unions. This is a useful resultin identifying distribution channels for weather-related insurance products in the region.

Dealing with the issues of perceived need and knowledge of insurance is perhaps somewhatmore complex. While the implicit need for alternative financial risk management tools wasrevealed from the survey results, there appears to be a lack of understanding by respondents oftheir own implicit need for insurance, which is exacerbated by a lack of knowledge of theconcept of insurance. As noted by Thomas and Leichenko (2011), one of the reasons for notobtaining insurance is a lack of awareness. Enhancing this understanding and increasing theknowledge of risk levels and the role of insurance in coping with extreme events should beconsidered a social good in this context and social marketing campaigns should be undertakenas an integral part of the implementation of any new financial risk management tools.

It is perhaps useful to analyse these results within Lashley’s (2010) framework for the demandfor microfinancial services which includes: convenience, affordability, safety and appropriate-ness. As the above discussion revealed, convenient locations for accessing financial serviceswere commercial banks and credit unions, while the issue of affordability was examined andrevealed a preference for a 30 % higher payout for the premium charged. In terms of appropri-ateness, and specifically the issue of timeliness, respondents indicated the need for payoutswithin one (1) week of the experience of an event. All of these findings provide specific pointersthat can be addressed in the design and implementation of microinsurance in the region.However, of greatest concern, and raised in the discussion above, is the issue of safety9 inrelation to the level of trust in insurance companies with 37 % indicating a lack of trust ininsurance companies to pay out what promised. This issue is one that will need to be dealt withover time through building confidence in consumers and a developing a trustworthy reputation.

By spreading losses among people and across time, insurance reduces the catastrophic impact ofdisasters, and enables a timely recovery. Through reducing the burden of loss and damage (if notthe average loss), insurance can facilitate adaptation. In addition to providing timely capital after adisaster, insurance can and should be linked with risk-reducing, preventive activities such as earlywarning, education, infrastructure retrofitting, and land-use regulations. Additionally, by creating asecure investment environment, insurance instruments can enable productive risk-taking, and inthis way ameliorate disaster-induced poverty traps. The IPCC (Murray et al. 2012) highlights thatunder certain conditions insurance can provide disincentives for risk reduction (moral hazard), butthat more innovative approaches such as index-based insurance help to eliminate this problem. Bypricing risk, insurance can help incentivize risk-reducing behaviour. Additionally, survey respon-dents indicated interest in an insurance product featuring storm warnings via mobile phone textmessage, and said that would help them reduce their risks.

Insurance is not a panacea for all types of loss and damage related to climatic extremes andchange; while insurance can support adaptation and risk resilience for extreme weather, it is notappropriate for foreseeable, widespread, slower-onset, climate-induced impacts. Even forweather-related events, insurance may be an inadequate or inappropriate stand-alone measure

9 The issue of safety refers to actual safety of funds in relation to regulation and supervision, and perceivedsafety in relation to the level of trust the individual has in the institution.

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to address very frequent hazards such as annual flooding. Resilience-building and prevention ofloss and damage may be more (cost) effective ways to address these types of risks.

Other limitations that affect the viability of insurance as an adaptation option include:affordability; the weakness of publicly-funded insurance schemes; lack of public knowledgeof risks and insurance; difficulties in reaching a larger proportion of the population due to ashortage of information on local weather risks; and insufficient risk-management and risk-transfer experience on the part of the initiators. Although poorly designed insurance pro-grams have been noted to actually impede adaptation or promote mal-adaption (Thomas andLeichenko 2011), there are avenues available to address design faults such as: premiumsubsidisation for the most vulnerable (Thomas and Leichenko 2011); public education andawareness (Litan 2006; Taylor et al. 2012); incentivisation of mitigation adoption (Botzenand van den Bergh 2008); government grants for property mitigation (Young 2009; LeBlancand Linkin 2010); and public-private cooperation (Thomas and Leichenko 2011). Careshould however be taken not to significantly distort insurance prices or market competition,while addressing affordability and accessibility needs of the most vulnerable.

7 Summary

The survey results indicate that while the dominant coping mechanisms were the use offinancial resources to manage extreme events (savings and credit) and governmental assistance,one tenth of the sample responded by “doing nothing” in the aftermath of an extreme weatherevent. This inaction undermines resilience and human well being needed to adjust/adapt toextreme weather events. These have even more detrimental long-term effects than utilisingother high stress coping mechanisms by undermining human well being (indicated by respon-dents such as job loss or reduced productivity, lack of productive investment, loss of credit,deterioration of social and health assets).. These results suggest—given that a prevalentresponse was “do nothing” or “use savings and credit”—an implicit need for alternativefinancial risk-management tools which ameliorate financial impacts with their knock-on effects.The SREX report finds that risk sharing at local, national, regional, and global levels are linkedto adaptation by offering recovery of livelihoods, financial relief, reducing vulnerability andincentives for risk reduction (IPCC 2012a).

In querying explicit levels of demand for microinsurance, respondents exhibited amoderate demand for a weather-risk insurance policy to manage and reduce loss and damagerelated to climatic stressors. This moderate demand level was probably due to the reasonscited for not having insurance which included: the expense of insurance, a lack of trust ininsurance companies, and a lack of knowledge of insurance. Thomas and Leichenko (2011)note other factors which may affect the viability of insurance as an adaptation strategy; thepotential to actually impede adaption or promote mal-adaption by supporting habitation inhigh-risk areas or de-incentivising the adoption of mitigation measures; unaffordable pre-miums and limited coverage by private insurers in high-risk areas; and the inability of publicprograms to operate efficiently in the insurance market. These are all factors that act againstthe effectiveness of insurance as an adaptation strategy.

In order to address these constraints, a number of actions will need to be taken such as:addressing affordability through premium subsidisation for lower income households(Thomas and Leichenko 2011); public education and awareness (Litan 2006; Taylor et al.2012); incentivisation of mitigation adoption through the linking of premiums to the type ofmitigation adopted (Botzen and van den Bergh 2008) and/or government grants for propertymitigation (Young 2009; LeBlanc and Linkin 2010); and public-private cooperation to

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maintain coverage in high-risk areas as public provided insurance has been shown to sufferfrom implementation and resource issues (Thomas and Leichenko 2011). However, one ofthe main issues to emerge from the survey in the Caribbean was lack of trust in insurancecompanies, and this will also need to be addressed in the medium to longer term.

8 Conclusions and outlook

Climate policy—like the emerging area of loss and damage—recognizes the need to developappropriate approaches like risk reduction, risk sharing and risk transfer tools to address lossand damage (UNFCCC 2012). At the climate negotiations in Warsaw, Poland (COP19) to beheld in November 2013, there is a mandate to establish institutional arrangements to addressloss and damage (UNFCCC 2012). The results presented here help broaden understanding ofthe kinds of functions and design elements such an arrangement could consider. Holisticapproaches that are designed to meet the needs of low-income groups will help to smoothdevelopment pathways and help to cushion the expected negative impacts of extreme weatherevents. Overall, the results support IPCC conclusions that where vulnerability and exposure arehigh, capacity is low (IPCC 2012b), and that weather and climate extremes are changing,requiring a rethinking about risk management measures to avoid the worst disaster losses forlow-income people. These losses, and damage related to weather extremes, impede socio-economic development and reinforce cycles of poverty in the Caribbean and in other areas ofthe world. When a crisis occurs, the poor often resort to a variety of coping strategies, such as:reducing food consumption, selling assets, asking family or friends for help, changing liveli-hoods, moving away, and borrowing from formal and informal sources (Sebstad et al. 2006;Cohen and Sebstad 2005; Montgomery 1996; Watts 1983). The result is that their trajectory outof poverty follows a zigzag route: advances reflect times of asset building and income growth;declines are the result of shocks and economic stresses that often push expenditure beyondcurrent income (Churchill 2006). The role of microinsurance, like any effective risk manage-ment instrument, is to temper these downturns, which are major impediments to escapingpoverty. In the correct circumstances, insurance can help create a space of certainty withinwhich investments and planning can be undertaken. By spreading losses, insurance helpsameliorate the impact of weather-related extremes, and facilitates timely recovery. By reducingthe burden of loss and damage, insurance facilitates adaptation.

Drawing on the survey results and the noted viability issues related to insurance andclimate risks, a multi-country program is currently linking livelihood protection with otherex ante tools to provide timely payouts following excessive wind and rainfall events. TheClimate Risk Adaptation and Insurance in the Caribbean Program bundles an early warningsystem with risk reduction information and insurance to protect the livelihoods of low-income groups in Jamaica, Grenada and St. Lucia. The approach features two insuranceproducts: the first to protect the livelihoods of those on low incomes (livelihood protectionpolicy), and the second to protect loan portfolios exposed to weather risks (loan portfoliocover).10 This approach, which takes into consideration issues of costs to clients, timelinessand assurance of payout, the use of trusted local distribution channels such as credit unions,and loan portfolio support for private providers, presents an alternative approach for low-income groups in the Caribbean. This rethinking of risk management, by linking to impor-tant aspects for low-income people like food and livelihood security, will play a crucial rolein adapting to climate change and extreme events in the Caribbean.

10 For more information, visit www.climate-insurance.org

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Acknowledgements The data presented in this paper was generated by the “Microenterprise demand forweather-related insurance and risk management approaches in the Caribbean” project undertaken on behalf ofthe Munich Climate Insurance Initiative (MCII) with funding from the German Development Corporation(GIZ). The authors thank Kristina Yuzva for research assistance and editing.

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