Poor households are among those most likely to be hardest hit by the effects of climate change (wildfires, flooding and drought), because of this, researchers from the University of California, Davis have determined that insurance might improve poor households’ resilience to climate change while simultaneously preventing those households from falling into poverty.
“If you're in a region that's prone to severe droughts, and you don't do anything about it until disaster strikes, that's expensive," said Michael Carter, a professor of agricultural and resource economics at UC Davis and director of the Feed the Future Innovation Lab for Assets and Market Access.
Concentrating their research on regions like eastern Africa (amid the worst drought they have had in decades), researchers determined that a major factor driving agricultural families into poverty are events such as a drought. This can be particularly devastating for farmers reliant on crops and livestock to feed their families.
"This is an area of the world where a severe drought event can destroy 50 to 60 percent of a family's wealth. Families can lose absolutely everything in the space of a couple of months," said Carter.
Following a drought, wildfire or flooding, these households are likely forced to cut back on food spending, which could mean fewer meals a day for some, which, for an extended period of time, could lead to undernutrition. Consequently, in households with small children, undernutrition might lead to delayed brain development and stunted growth, possibly affecting those children’s progress in school and potentially compromising their ability to earn a living.
"A child not properly fed in the early stages of life is never going to reach their human potential," said Carter. "It can cause poverty to be passed on to future generations."
Developing an economic model to investigate what potential interventions might work to break up the cycle, Carter and study co-author Sarah Janzen, an assistant professor of economics at Montana State University, found that the most effective intervention came in the shape of partially subsidized insurance and not the conventional aid programs often helping families after calamity has struck.
With small premiums paid at the start of each season, researchers believe that insurance coverage would be more reliable than emergency aid.
"This analysis suggests that targeting vulnerable households — in addition to the already destitute — will protect households against heightened risk and minimize unnecessary poverty in future generations," said Janzen.
Unfortunately, researchers caution that the effectiveness of insurance has a threshold.
"If climate change gets sufficiently severe, then even addressing those at risk of falling into poverty is not going to work. Parts of the earth are going to become economically nonviable, and people are going to go elsewhere," said Carter.
The research is published in the journal Environment and Development Economics.