Adapting to Climate Change: Assessing the World Bank Group ...

CHAPTER 3CLIMATE VARIABILITYCountry Institution Intervention type Enrollment YearsNicaragua World Bank Pilot$1.5m of assets from mediumlargefarmers2008Thailand World Bank Pilot $300k assets insured 2007-8Kenya World Bank, IFCTechnical23,500 farmers, 19 agribusinessassistance firms, as of 20112009-West Africa IFCTechnicalassistance679 farmers 2010-Rwanda IFCTechnicalassistance7143 farmers as of 2012 2010-Source: IEGNote: This does not include support for feasibility studies or other assistance that have not yet led to products.3.36 Insurance designers face difficulties in determining which events to cover.Insurance against frequent events—say, the once-in-5-year drought—is inherentlyexpensive. But with insurance that covers only less common events—say, the once-in-10-year event—purchasers may experience many years of premium payments with noobserved payout. They may grow disillusioned and distrustful of the insurer. Mistrustwill grow if crops fail but payouts are not triggered by the index due to basis risk.Experimental evidence from China supports the idea that future uptake rates aredependent on observing payouts (Cai 2011).3.37 Though most index insurance pilots have not led to scaling up, two Bank-relatedindex insurance projects are operating at large scale. (See Annex I5 for details.) TheWeather Based Crop Insurance Scheme in India is by far the largest in the world; as of2010-11, over 9 million farmers were enrolled (Clarke, Mahul, and others 2012). Thescheme draws its origins from a 2003 pilot in Andhra Pradesh that received World Banktechnical assistance. The WBCIS system relies heavily on public subsidies, withpremium rates capped at 1.5-2 percent of insured value for wheat and other food crops;over 2007-10 total payouts exceeded total premiums by 30 percent. Participation byfarmers is largely compulsory, tied to credit access. Basis risk remains significant;farmers who suffer a total crop loss will still have a 1 in 3 chance of receiving nopayment from the WBCIS (Clarke, Mahul, and others 2012). The Index-Based LivestockInsurance Project in Mongolia has been adopted (for winter 2010/11) by 11 percent ofherders in target areas. Observed uptake may have been due in part been to threesuccessive years of severe winters and high payouts (including the worst winter everrecorded in 2009/10), which have strained program finances.3.38 Designers should consider the primary purpose being achieved with agricultureinsurance (World Bank 2011e). If the goal is to insure against the macroeconomicconsequences of a major weather shock in an agriculture-reliant area, then insuranceshould target national or regional governments or agribusiness enterprises. If the goal is44