The Potential for Scale and Sustainability in Weather Index Insurance

THE POTENTIAL FOR SCALE AND SUSTAINABILITY IN WEATHER INDEX INSURANCE
FOR AGRICULTURE AND RURAL LIVELIHOODS
Table 19: Overview of PRF-RI and PRF-VI pilot programmes
PRF-RI PRF-VI
Crop year 1 Feb to x 1 April to x
Index interval 2-month 3-month
Producers select At least 2 intervals At least 1 interval
Index Rainfall amount Vegetative greenness
PRF-VI uses a measure of vegetative greenness called the Normalized Difference
Vegetation Index (NDVI). NDVI is derived from satellites observing long-term changes in the
greenness of the earth’s vegetation. The satellites are maintained by the EROS Center. The
greenness of vegetation implies overall crop health on the ground (i.e. forage conditions and
productive capacity) in relation to the average at that time of year – in general, healthier
plants are given the higher index values.
Premium rates and subsidies
Premium rates for the policy depend on the number of insured acres, a productivity factor
and the coverage level. Producers are allowed to insure any proportion of their land. The
productivity factor ranges from 60 to 150 per cent, and the coverage level ranges from
70 to 90 per cent in 5 per cent intervals. The dollar amount of protection per acre of land is
the product of the county base value (which is the established production value for each crop
type in a county), the productivity factor and a producer’s share (if less than 100 per cent).
$(protection/acre) = county base value x productivity factor x producer’s share
$(protection/unit) = $(protection/acre) x no. of acres insured
The premium is individually rated, and claim payments are independently calculated in
each unit.
Producer premiums are subsidized. Producers pay 49 per cent of the premium at the
90 per cent coverage level, 45 per cent at the 80 and 85 per cent coverage levels, and
41 per cent at the 70 and 75 per cent coverage levels.
Triggers
Indemnities are paid out whenever the actual rainfall index (PRF-RI) or vegetative greenness
index (PRF-VI) falls below the trigger grid index (coverage level multiplied by the long-term
expected value of the index) in the grid and index interval chosen.
Payouts
The indemnity is calculated for each unit as the product of the payment calculation factor
and policy protection per unit. The payment calculation factor is computed similarly to other
group risk insurance programmes:
Payment calculation factor = (trigger grid index – final grid index)
trigger grid index
If an indemnity is due, it will be issued no later than 60 days after the determination of the final
grid index. Premium rates vary by each grid cell, index interval and type of land (Table 20).
ANNEX
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