Actuarial Science, Climate Justice, and Equitable Insurance Pricing for Vulnerable Communities in Nigeria

This study develops an original theoretical and applied framework for incorporating climate justice considerations into actuarial pricing models for insurance products serving vulnerable communities in Nigeria, contributing to the emerging field of socially conscious actuarial science. Standard actuarial pricing principles require premiums to reflect individual or group risk exposure, a paradigm that produces the paradox of charging the highest premiums to the most climate-vulnerable communities, who typically bear the least historical responsibility for climate change. This tension between actuarial pricing adequacy and climate justice fairness creates a significant barrier to insurance market development in Nigeria's most climate-exposed regions. This study reviews theoretical frameworks from distributive justice theory, public economics, and actuarial ethics to develop a climate justice actuarial pricing model that allocates climate risk costs across risk pools using a combination of actuarial soundness and social welfare principles. The model is applied to agricultural, property, and health insurance pricing scenarios in Nigeria's North East and North West zones, which face the highest climate vulnerability. Alternative cost allocation mechanisms including cross-subsidization, government risk pooling, and parametric social insurance are evaluated using the model. Findings demonstrate that pure actuarial pricing produces premium rates in the most vulnerable communities that are unaffordable for 70 to 85 percent of households, while a climate justice-adjusted pricing model maintaining overall pool actuarial balance achieves affordability for 45 to 60 percent of households. The study contributes an original climate justice actuarial framework and recommends a government-subsidised climate insurance scheme for the most vulnerable Nigerian communities.

Keywords: climate justice, actuarial pricing, vulnerable communities, social insurance, Nigeria.