Rents, Experiments, and the Perpetual Presence of Concessionary Weather Insurance

Abstract

Geographers have interpreted the rise of weather insurance for small agricultural producers as emblematic of financialization’s inexorable march to capitalize the countryside. Yet this market has proved far less successful than advocates hoped or critics feared. Rather than a speculative tool for surplus extraction from smallholders or a mechanism for their financial subjectification, this article reinterprets weather insurance as an infrastructure of concessionary transfers from the development sector to make market-mediated mechanisms work. These transfers are emblematic of the new distributional terms struck between donors, states, and insurance capital as financial risk transfer is articulated with the extension of fragmentary safety nets. Economic field experiments with insurance have proliferated as venues in which the value of insurance is tested by both economists and experimenting subjects. Just as data from these trials have suggested some positive welfare impacts, they have also indicated target clients are unwilling or unable to pay full market price, thus performing a new justification for the perpetual presence of subsidies. Such transfers present opportunities for reinsurers to command rents through their control of large pools of capital and their interpretive authority over techniques for pricing risk under uncertainty. In a changing climate, reinsurers are poised to collect larger rents from donors’ and governments’ premium subsidies meant to decrease insurance costs for the vulnerable. These dynamics of rent cycling underscore the urgency of building more equitable, systematic risk-sharing infrastructures to replace the current fragmentary archipelagos of weather insurance.

小型农业生产者天气保险的兴起, 被地理学家解读为金融化必然向农村资本化进军的象征。但事实证明, 这一市场既不如倡导者所希望的、也不像批评者所担心的那么成功。本文认为, 天气保险不是从小型农业生产者手中获取盈余的投机工具, 也不是金融主体化的机制。本文将天气保险重新解释为转移优惠的基础设施, 即, 从开发部门转向由市场发挥调节作用。由于结合了金融风险转移、零星金融安全网的扩展, 这些转移象征着捐助者、国家和保险资本之间达成了新分配条款。经济学家和实验对象通过保险实地经济实验去检验保险的价值。实验数据表明了积极的福利效果, 也表明目标客户不愿或无法支付全部市场价格, 这些都为永久性补贴提供了新的依据。这种转移为再保险公司提供了机会：通过控制大量资金和拥有不确定性风险定价技术的解释权, 再保险公司能够获得租金。在气候不断变化的情况下, 捐助者和政府的保费补贴旨在降低弱势群体的保险成本, 而再保险公司有望从这些补贴中获得更多的租金。租金循环的变化, 强调了建立更公平和系统的、取代目前零星气候保险的风险分担基础设施的紧迫性。

Los geógrafos han interpretado el advenimiento del seguro meteorológico para los pequeños productores agrícolas como la emblemática marcha inexorable de la financialización para capitalizar el campo. No obstante, este mercado ha resultado ser menos exitoso de lo que esperaban sus defensores o de lo que sus críticos temían. Más que una herramienta especulativa para la extracción de excedentes en los pequeños propietarios o un mecanismo para su subjetivación financiera, este artículo reinterpreta el seguro meteorológico como una infraestructura de transferencias en concesión, desde el sector desarrollado, para hacer operar los mecanismos mediados del mercado. Estas transferencias son emblemáticas de los nuevos términos de distribución establecidos entre donantes, estados y el capital asegurador, en cuanto la transferencia del riesgo financiero es articulada con la ampliación de las redes de seguridad fragmentarias. Los experimentos en el campo económico con los seguros se han multiplicado como escenarios en los que el valor del seguro es puesto a prueba tanto por los economistas como por los experimentadores. Justamente como datos de estos ensayos sugieren algunos impactos positivos de bienestar, también han indicado que los clientes-objetivo carecen de la voluntad o son incapaces de pagar la totalidad del precio del mercado, representando así una nueva justificación a la eterna presencia de subsidios. Tales transferencias presentan a los reaseguradores oportunidades de obtener mayor renta gracias a su control de grandes fondos de capital y a su autoridad interpretativa de las técnicas para determinar los precios del riesgo, bajo condiciones de incertidumbre. En un clima cambiante, los reaseguradores están prontos a lograr mejores rentas en las subvenciones concedidas por donantes y gobiernos, que estaban destinadas a disminuir los costos de los seguros para los más vulnerables. Estas dinámicas de ciclos de renta subrayan la urgencia de construir infraestructuras más equitativas y sistemáticas para repartir el riesgo y remplazar los actuales archipiélagos fragmentados de los seguros aplicados al tiempo y el clima.

Key Words:

• climate risk
• financialization
• index insurance
• rent
• social protection

关键词:

• 气候风险
• 金融化
• 指数保险
• 租金
• 社会保障。

Palabras clave:

• financialización
• índice de aseguramiento
• protección social
• renta
• riesgo climático

Acknowledgments

This article is the culmination of years of interviews and conversations with dozens of insurance and development practitioners and economists. Although not all of them will agree with the argument advanced here, I am immensely grateful for all of their candor, time, and trust. I am particularly indebted to the indefatigable IBLI team at the International Livestock Research Institute in Nairobi, who have allowed me to observe and participate in their activities since 2013. Thanks also to the Microinsurance Network for welcoming me as a participant, and Michael Carter and Andrew Mude for thought-provoking feedback on earlier drafts. I am grateful to Ryan Isakson, Christian Berndt, Peter Lindner, Jessica Dempsey, Morgan Robertson, Brett Christophers, Jonathan Reeves, Patrick Bigger, Stephen Collier, Turo-Kimmo Lehtonen, Rebecca Elliott, Sara Aguiton, and Dan Buck for seminar invitations, conference sessions, and exchanges that helped spawn and refine this article.

Notes

1 Including private foundations such as Rockefeller, Gates, Syngenta, and MasterCard.

2 Closed-door policy roundtable, London, September 2017.

3 Even in Organization for Economic Cooperation and Development countries, premium subsidies for agricultural insurance are still overwhelmingly used as a means to accomplish political and social ends in rural constituencies.

4 Excluding loading for operational and capital costs and profits by an insurer.

5 Land outside of private title regimes (as in much of rain-fed African agriculture) cannot be used as collateral for agricultural loans, and thus cannot be seized in case of farmer loan default. Thus limited liability loan arrangements are sometimes interpreted as offering “implicit insurance” (Giné and Yang 2009; Carter, Cheng, and Sarris 2016).

6 Although some recent work suggests that demand for insurance, at least among farmers of high-value crops (cotton and sugar cane) increases dramatically if the premium is collected after harvest rather than at the beginning of the season (Casaburi and Willis 2018; Serfilippi et al. 2020). See also Cai et al. (2020) on the significance of subsidies exposing clients to the experience of payouts.

7 Field staff do not know why the coupon essentially “stopped working” in the third year, and it is difficult to disentangle the reasons amidst declining overall take-up; larger discounts might have induced doubt about the true value of the product.

8 The KLIP program is not donor funded, although some bilateral donors did participate in conversations about program design and the World Bank was heavily involved in a technical advisory role.

9 For instance, in a scenario where the insurer cedes 90 percent of the risk to the reinsurer, the latter accepts financial responsibility for any payouts exceeding 10 percent of the original sum assured.

10 Formula presented by an actuary for an African domestic insurance company to a group of government functionaries and NGO partners, October 2017. Exact rate setting procedures can vary slightly by company but generally include all of these parameters.

11 Higher rates for indemnity cover include costs of “loss adjustment” (e.g., inspection of damaged crops).

12 It also faced challenges with sufficiently diversifying an underwriting portfolio and attracting private-sector partners to a public–private partnership (Author interview, July 2021).

13 Africa Re and Cica Re, both based in West Africa, and MiCRO, reinsuring microinsurance in Central America.

14 Depending on geographic unit.

15 Original project subsidy request document shared with the author.

16 Author calculations based on original subsidy request document.

17 Author calculations based on sales, premiums, and subsidy records shared with the author.

18 This raises the question of why firms left the project despite favorable loss ratios. Reasons included large costs and difficulties of product delivery (including financial intermediation with banks, agent fees, and client education) for relatively small underwriting volumes (see Johnson et al. 2019).

Additional information

Funding

Parts of the research and writing of this manuscript were supported by the Swedish Research Council through the project “Climate Change and Transformations of Financial Risk” (#2015-01694).

Notes on contributors

Leigh Johnson

LEIGH JOHNSON is an Assistant Professor in the Department of Geography at the University of Oregon, Eugene, OR 97403. E-mail: [email protected]. Her research focuses on the political economy of climate and disaster risk finance, and the politics of knowledge and labor in climate change adaptation.