Does insurance work? Dynamic assessment of insurance, poverty, and climatic hazard outcomes in Thailand

Abstract

While the linkage between poverty and climatic hazard outcomes is well documented in the development agenda along with the role of disaster risk financing, dynamic subnational-level statistical assessment of causal effects of formal insurance on climatic hazard outcomes has been scarce to date. This paper investigates the relationship between insurance, poverty, and outcomes of climatic hazards (i.e., flood and drought) using a panel dataset of 76 provinces in Thailand for the period 2009–2018 by applying the panel Granger non-causality test using the half-panel jackknife procedure for deriving bias-corrected estimators. Several bidirectional causalities were revealed between insurance and poverty, insurance and hazard outcomes, and poverty and hazard outcomes, whilst diverse patterns of short-run unidirectional causalities were identified between those variables in several instances. The results suggest that nonlife insurance plays a significant role in alleviating poverty through its rapid effects as well as longer influence. Moreover, insurance consumption had causal effects on hazard outcomes. On the other hand, exposure to flood and drought had significant effects on insurance consumption, particularly nonlife insurance. These findings highlight the relevance of insurance, in particular nonlife insurance, as an ex-ante mechanism for reducing vulnerability to poverty in the aftermath of natural hazards.

Keywords

• Climatic hazard
• Disaster risk
• Granger non-causality
• Life insurance
• Nonlife insurance
• Poverty alleviation