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
Case Study 8
Index insurance pilot
in Ukraine
Context
Agriculture accounts for just over 9 per cent of Ukraine’s GDP, 55 with the annual production
of agricultural commodities estimated at 80 billion Ukrainian hryvnias (Hrv) (US$10 billion). 56
Agricultural land constitutes 42 million ha or 70 per cent of the total area of the country, of
which approximately 32 million ha are allocated for field crops such as cereals and oil crops.
There are about 40,000 private farms and 16,000 commercial farms.
The most common agricultural risks in Ukraine are drought, spring frosts, strong winds,
hail and ‘winterkill’ (crop deaths following exposure to cold winter weather). Severe winterkill
was registered in 2003, when 70 per cent of the winter crops perished from low
temperatures and ice crust. Ukraine experienced drought in 2003, 2005 and 2007. In an
attempt to mitigate these risks, producers cultivate drought-resistant varieties and crops
that conserve moisture. Though important, these techniques have had limited effect in the
years in which rainfall was inadequate, especially if little soil moisture had been stored over
the winter. Thus, while demand for an insurance product with drought coverage was high,
it had never been met.
Crop insurance has been implemented poorly in the Ukraine. Index insurance was
introduced in 2001, and the first programme was launched in 2003. It was a hybrid of multiperil
crop insurance (MPCI) and an area-based yield index for all major field crops.
Indemnities were paid based on regional statistical records (not an official statistical report)
and a farm-level inspection of actual yield; that is, the farmer had to provide proof that the
crop yield reduction was caused by the risks insured. Complicated and unclear loss
adjustment procedures meant that payouts were usually delayed for up to six months.
Recently, producers have lost interest in the area-based yield index, and insurers have been
looking for effective new ways to insure crops.
55 CIA World Fact Book/Ukraine, https://www.cia.gov/library/publications/the-world-factbook/geos/up.html.
56 In August 2009, 1 US$ = 8,34 Hrv.
ANNEX
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