Weather insurances are a potential measure to reduce the vulnerability to climate variability in the agricultural sector. By ensuring the access to resources and assets after extreme weather events, insurance schemes reduce the risk of high losses, strengthen resilience and contribute to improved adaptive and coping capacities. In this way insurance policies provide a coordinated safety mechanism that will gain further relevance as the weather becomes more unpredictable.[1]
The occurrence of disasters triggered by extreme weather conditions can have devastating impacts on the economy of a country or society. In the agricultural sector the dependency on the agricultural production for income and food security is often very high making farmers vulnerable to weather-risk. In agricultural livelihoods extreme weather events, droughts or floods are frequently the cause for temporary food shortages or famines as well as for adverse long-term impacts on education, nutrition, health or even the destruction of livelihoods.[2]
Micro-insurance schemes address the low-income population in developing countries that most often does not have any access to insurance products that suit their needs and conditions.[3] The micro-insurance arrangements take the specific conditions in the respective context into account and seek to provide some protection against shocks and enable better participation in economic activities.[4]
A common form of insurance in the agricultural sector is the index-based micro-insurance.[4] This approach has evolved as traditional agricultural insurance schemes are very costly for individual (small-scale) farmers due to the requirements to assess, measure and verify crop damages.
Index-based insurance differs from the traditional insurance in so far that the loss is estimated on the basis of an index that is related to the loss without focusing on the individual loss of the policy holders.[5] Very commonly rainfall data from a weather station is used as an indicator for crop performance. For instance, in the case of deficit rainfall, indemnity payments would start at a certain precipitation threshold value and increase for each millimetre (mm) of rainfall below this threshold until the agreed limit is reached.[6]
Other potentially damaging weather events that are addressed in crop specific index-based insurance schemes are excess rainfall, high wind speeds or too high/low temperatures.[7]
The Gesellschaft für Internationale Zusammenarbeit (GIZ) has contributed to the development of insurance instruments for climate change adaptation in projects in the PR China (2008-2011)[8] as well as in Ghana (2009-2013).[9]
In both cases the agricultural livelihoods are highly vulnerable to climatic variability and extreme events. The insurance sector seeks to offer affordable and demand-oriented index-based insurances against the financial consequences of extreme weather conditions.
Within the projects a thorough assessment of the conditions for insurance development has been undertaken including an analysis of the legal and regulatory framework and relevant climate data. In cooperation with national partners there has been training, awareness rising and consulting to further develop the insurance sector and the required meteorological infrastructure. The activities involve national insurance companies, international re-insurers, meteorological administrations services and relevant policy-makers.
In both countries the foundation for further developing index-based weather insurance policies has been laid through studies about weather effects on crops, improvements of weather stations, the assessment of data availability and the development of indices. In the Chinese province Fuijan an insurance that addresses typhon damages has already been developed.
References
- ↑ GIZ (2011): Adaptation to Climate Change. New findings, methods and solutions.
- ↑ Hess, U. and J. Syroka, 2005, “Weather-based Insurance in Southern Africa. The case of Malawi”, The International Bank for Reconstruction and Development, The World Bank, Agriculture and Rural Development Discussion Paper 13.
- ↑ McCord, M.J and Roth, J., 2006, “What is Microinsurance?”, Microinsurance Note 1, US Agency for International Development.
- ↑ 4.0 4.1 Roth, J. and McCord, M.J., 2008, “Agricultural Microinsurance - Global Practices and Prospects”, The MicroInsurance Centre, Appleton, USA.
- ↑ Gine, X., 2009, “Innovation in Insuring the poor. Experience with Weather Based Insurance in India and Malawi”, International Food Policy Research Institute Malawi Millennium Development Goal, 2003.
- ↑ Mechler, R., J Linnerooth-Bayer, D. Peppiatt, 2006, “Disaster Insurance for the Poor? A review of microinsurance for natural disaster risks in developing countries”, A ProVention/IIASA Study.
- ↑ Skees, J., A. Murphy, B. Collier, 2007, “Scaling Up Index Insurance. What is needed for the next big step forward?”, Kreditanstalt für Wiederaufbau (KfW ). German Financial Cooperation.
- ↑ GIZ “Insurance instruments for adaptation to climate change”, China, 2008-2011, http://www.giz.de/themen/en/29599.htm [accessed 16 April 2013]
- ↑ GIZ “Innovative insurance products for adaptation to climate change”, Ghana, 2009-2013, http://www.giz.de/themen/en/32798.htm [accessed 16 April 2013]
Further reading
GIZ (2011): Adaptation to Climate Change. New findings, methods and solutions.
Linnerooth-Bayer, J., R. Melcher, R. (2008):Insurance against Losses from Natural Disasters in Developing Countries. United Nations World Economic and Social Survey (WESS). DESA publication.
Skees, J. (2008): Challenges for the use of Index Based Weather Insurance in Lower Income Countries. University of Kentucky Agricultural Experiment Station. USA.
Skees, J., Goes, A., Sullivan, C. (2006): Index Insurance for weather risk in lower-income countries. USAID, Global Ag Risk Inc, Lexington, Kentucky. http://globalagrisk.com/Pubs/PRIMER_USAID.pdf [accessed 16 April 2013]
Varangis, P., Skees, J. R., Barnett, B.J. (2002): Weather Indexes for Developing Countries. Climate Risk and the Weather Market: Financial Risk Management and Weather Hedge. R. S. Dischel, ed. London: Risk Books, Risk Water Group Ltd., pp. 279-294.
Vatsa, K.S. (2004): Risk, Vulnerability, and Asset-based Approach to Disaster Risk Management. International Journal of Sociology and Social Policy, Volume 24, 10/11, 1-48.
Wisner, B., Blaikie, P., Cannon, T., Davis, I. (2004): Access to resources and Coping in Adversity. In: At Risk - Natural hazards, people's vulnerability and disasters. B. Wisner, P. Blaikie, T. Cannon, and I. Davis. London, Routledge. 87-124.
