Tuesday, June 24, 2014

Linking Climate Information to Index Insurance for African Farmers

Credit: Al Jazeera

Access to insurance is important to agriculture, not only does it protect farmers livelihoods in case of catastrophic losses of their crops as a result of unexpected seasonal changes, but also assures that farmers can quickly recover and replant in order to protect regions from suffering food shortages or long term rise in prices. Unfortunately access to agricultural insurance and disaster insurance is limited  in many developing countries or if available, prohibitively expensive.

With that in mind, the World Bank- together with funding from the EU and the Netherlands- have developed the Global Index Insurance Facility (GIIF) for Africa.  The GIIF seeks to create insurance products for small farmers based on specific defined weather events (known as index insurance) such as inadequate rainfall.  

The advantage of index insurance is that insurance brokers do not need to visit the farm as specific climatological triggers make the policy effective. This results in low transaction costs and the fast disbursement of payments which are crucial to allow farmers to recover quickly and replant. The low transaction costs in turn allow for lower premiums which are necessary to attract small farmers. A key feature of GIIF supports local broker agents by funding implementing partners comprised of an intermediary “broker/agent” that develops index insurance products with local and regional insurance companies who then sell the products. The index insurance products are often bundled with loans or credit and distributed mostly through portfolio-level aggregators such as agribusinesses, banks and microfinance institutions, and cooperatives. The large Dutch agribusiness company Syngenta is an important partner to the GIIF and together launched Kilimo Salama, a social enterprise, to market weather, area yield, and livestock index insurance products covering a wide range of crops and dairy cattle. Kilimo Salama is now insuring 185,000 farmers in Kenya, Rwanda, and Tanzania, with plans to expand into East Africa

As index insurance is dependent on climatological triggers, its success is highly dependent on the availability of publicly available weather data with a high degree of local accuracy. To gain access to climate information it works with partners to provide the necessary data. The project team has so far focused on refining satellite data as a basis for the index working with the Dutch EARS program and recently IRI at Columbia University.  Most of the GIIF implementing partners are using a mix of weather stations and satellites. Ground weather station data can be used for product design or verification of micro climates. Several companies have now been engaged to work on new methods/tools for making better use of satellite data with cooperation from NOAA.  Syngenta, a major partner of GIIF, reportedly started out more than 5 years ago installing local weather stations but found they did not provide the reliability and accuracy required.  

The GIIF and the CIRDA program are both working in Tanzania, Burkina Faso, and Benin, with GIIF planning to expand to for Ethiopia. The CIRDA Team has reached out to the GIIF to envision cooperation possibilities between both initiatives. 

Initiatives like the GIIF demonstrate how important climate information is to development, poverty prevention and food security. It also demonstrates the needs of the financial sector in accessing reliable climate information. By understanding the key needs of climate information to end users it becomes easier to envision ways of reaching them and creating innovative partnerships.

1 comment:

CIRDA Team said...

The CIRDA Team recently received the following comments from an Expert of Meteorology from the Universty of Oklahoma:

" Index-based insurance has become popular around the world in the last decade. In the US, the leading company providing this type of insurance is The Climate Corporation (https://www.climate.com/). TCC offers both index-based insurance and agricultural decision support tools, targeting mainly corn, wheat, and soy beans. It is worth noting that TCC uses mainly local surface stations to compute the indicies that decide if a payout is required or not. I am somewhat skeptical of about the use of sattelite data as the resolution of satellite observations is relatively course compared to the size of many of the small micro-climate regions that contain the even smaller farms found across Africa. Certainly much useful information can be obtained from satellite observations of the surface, but whether those observations-- alone -- can lead to local-level index valules that handle payouts properly remains to be seen. Using a mixed approach, with satellite observations and surface observations, perhaps all assimilated in to a modeling system, would likely work well, but is also likely be very hard to explain to the insured farmers.

Not specifically mentioned is the need for the weather stations to be operated by a neutral party trusted by both the insurer and the insured. This is usually a government entity but occasionally a private weather services company provides the observations (for a price). It is also worth noteing the remark "Syngenta, a major partner of GIIF, reportedly started out more than 5 years ago installing local weather stations but found they did not provide the reliability and accuracy required." I have looked at the stations that Syngenta deployed in Nigeria and thought at the time the tipping bucket raingauges they used would not last long in many African environments. Apparently my thought was correct. Systems with moving parts just do not hold up in such environments unless one provides for expensive continuous maintenance, which is not practical for this insurance application where minimizing costs are essential for the scheme to work. It is only in recent years that practical raingauges with no moving parts have become available. An example is provided by micro-radar precipitation sensor technology. Such a technology can be deployed as a standalone device or integrated into a complete weather station. It is highly desirable that such sensors can be operated using solar panels for power; for an example, see http://blog.lufft.com/en/meteorological-early-warning-systems-in-high-risk-areas (click on the central image to see the full weather stations with data logger and telecommunications interface) and also http://www.valenzuela.gov.ph/index.php/article/news/1290.

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