By Kathy Baughman McLeod, Mary McBryde and Visala Annamalai, Climate Resilience for All, Washington DC & Cape Town

Climate-induced disasters – such as extreme heat, flooding, wildfires, and drought – are causing substantial societal, public health, and economic losses globally. These climate shocks are growing in intensity, duration, and destruction – and few are prepared to face them. Women and vulnerable communities are disproportionately affected and at greater risk due to intersecting factors such as homecare responsibilities, poverty, challenging working conditions, and limited access to water and toilets. These conditions exacerbate health risks, result in significant income loss, and reduce the capacity of these communities to prepare for, endure, and recover from such climate-related events.

Using insurance approaches can help manage and reduce these impacts. With $32 trillion in assets under management and the world’s best experts in risk quantification and transfer, the insurance industry is a critical market actor in addressing climate risks and reducing impacts.  Further, there is evidence of a correlation between the rate of insurance penetration (particularly property and casualty) and GDP growth, suggesting that wider takeup of insurance often aligns with higher GDP per capita.[1]  Insurance has long been shown to reduce societal risks, build stronger and safer cities, and protect people and property. It is now time to show its utility in supporting financial and physical risk reduction from climate shocks for vulnerable people and communities.

Extreme Heat, Women, and Insurance

Of all climate perils, extreme heat is the most lethal, silently causing more deaths than any other hazard. Recent and mounting evidence shows that women experience far greater physical and economic harm due to extreme heat. Women are more susceptible to heat-related illnesses due to physiological differences, which include higher core body temperature hormonal fluctuations, body fat percentage, and heart rate than men. Studies have shown that women are up to 14 times more likely to die in climate-related disasters than men[2] and are nearly four times more likely to be heat intolerant.[3] Additionally, extreme heat poses significant risks to maternal health with each 1°C rise in heat exposure among pregnant women linked to a 27-42% increase in the risk of miscarriage or stillbirth.[4]  Extreme Heat reduces the capacity of women working in the informal economy to earn the daily wages they depend on for survival. Women are more likely to be employed in informal jobs, often outdoors or in poorly ventilated structures, making them highly vulnerable to heat at work. Women-headed households in rural areas experience significant income losses due to extreme heat and flooding. A 1°C increase in temperature can lead to a 34% reduction in the total income of female-headed households compared to male-headed households. Additionally, heat stress widens the income gap between female-headed and male-headed households by $37 billion annually, while floods contribute an additional $16 billion.[5] Climate adaptation interventions are increasingly needed as temperatures rise, extreme heat conditions proliferate and losses grow.

Insurance can be effective for addressing climate risks and impacts. When combined with other financial and non-financial interventions, insurance can be particularly effective in supporting and empowering women and vulnerable communities, including by better integrating poor and informal workers into the formal economy, enhancing their risk and financial literacy, and increasing their resilience to climate threats. “Parametric” insurance – a relatively new type of risk-transfer product –is gaining traction, and drawing attention from key actors such as the Insurance Development Forum, the G20-created Global Shield, the InsuResilience programme, national governments, and the U.N Development Programme’s Insurance and Risk Finance Facility. Unlike traditional indemnity insurance, parametric insurance is triggered by pre-determined thresholds and doesn’t rely on post-event analysis of losses. Payouts can be delivered within days or weeks of a climate event directly to the beneficiaries, which can be critical to quicker and more effective recovery, especially for those with the fewest resources to fund recovery themselves. Parametric products are increasingly used by countries and sub-national jurisdictions, along with regional risk pools serving the disaster finance needs of particularly climate-vulnerable areas. Several trials of parametric heat insurance have been deployed, to protect health, livestock, income, and livelihoods, and experiences with these products hold valuable lessons for the future.

Key Learnings

This CRA initiative, begun in India and Pakistan, is now expanding to Thailand and West Africa. Through different WCSI programmes, key learnings are emerging:

1. People don’t understand the seriousness of rising heat threats, and the disproportionate impact it has on women. Awareness of the size and scale of the dangers of extreme heat remains too low among communities, governments, and many other parts of society to prompt appropriate responses. That means awareness must be raised even as interventions are created and delivered simultaneously.
2. Insurance alone is not enough. It can increase the financial protection of highly vulnerable populations, including informal workers. But it needs to be delivered with other financial solutions, such as direct cash assistance, as well as non-financial solutions, which can include, for example, protective equipment to help workers adapt to hotter working conditions. With this mix of interventions, the potential to build resilience is greatly enhanced.
3. Building insurance literacy is key. Understanding by the buyer/beneficiary that insurance is not designed to provide payouts to cover all losses, only a pre-determined sum when key triggers are passed, is essential to avoid unrealistic expectations. Providers must be clear and transparent on this issue.
4. Managing basis risk is crucial to ensure the effectiveness and fairness of parametric insurance schemes. Basis risk in parametric insurance refers to the mismatch between the actual losses experienced, and the insurance payout triggered by a specific parameter, such as rainfall, wind speed or temperature. This occurs when the parameter used to activate the payout does not perfectly correlate with the actual damage or loss, leading to either insufficient payouts for significant losses or payouts when little or no damage occurs.
5. Parametric insurance can help keep poor people out of debt. These products offer an alternative source of financial protection for vulnerable people who otherwise often resort to predatory lending, which can bring long-term negative financial and social consequences, crippling their ability to prepare for and recover from future climate and other shocks.
6. Forecast-based insurance is the future. Parametric products that pay out at the time of a verified forecast of a predicted severe event versus after the actual event are a proactive disaster risk management approach. They enable early action to avoid losses, allowing policy buyers to rapidly take the actions they think will most protect themselves from impacts such as heat extremes, drought or storms, and reducing the costs and uncertainty of post-disaster response. Efforts are underway to scale the approach and enhance the regulatory environment to accelerate these products.

Photo caption: SEWA Farmers from Anand in Gujarat. Photo credit: Geraldine Henrich-Koenis

[1] Swiss Re sigma No 4 /2021 https://www.swissre.com/dam/jcr:19f316fe-0381-42a9-8cfd-9794f746e421/swiss-re-institute-sigma-4-2021-en.pdf

[2] OECD temporary archive. (2023). https://web-archive.oecd.org/temp/2023-07-18/662394-gender-discrimination-inhibits-global-efforts-tackle-climate-crisis-sigi.htm

[3] Kazman, J. B., Purvis, D. L., Heled, Y., Lisman, P., Atias, D., Van Arsdale, S., & Deuster, P. A. (2015). Women and exertional heat illness: identification of gender specific risk factors. U.S. Army Medical Department Journal, 58–66.

[4] Asamoah B, Kjellstrom T, Östergren PO. Is ambient heat exposure levels associated with miscarriage or stillbirths in hot regions? A cross-sectional study using survey data from the Ghana Maternal Health Survey 2007. Int J Biometeorol. 2018; 62(3): 319-330. DOI: 10.1007/s00484-017-1402-5 as cited in Baharav, Y., Nichols, L., Wahal, A., Gow, O., Shickman, K., Edwards, M., & Huffling, K. (2023). The Impact of Extreme Heat Exposure on Pregnant People and Neonates: A State of the Science Review. Journal of Midwifery & Women’s Health, 68(3).

[5] FAO. 2024. The unjust climate – Measuring the impacts of climate change on rural poor, women and youth. https://www.fao.org/3/cc9680en/cc9680en.pdf