The Potential for Scale and Sustainability in Weather Index Insurance

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THE POTENTIAL FOR SCALE AND SUSTAINABILITY IN WEATHER INDEX INSURANCE FOR AGRICULTURE AND RURAL LIVELIHOODS 23 weather stations throughout the country. The presence of the stations was essential in launching this product and enabling a sophisticated, market-based risk transfer, despite the generally poor conditions of the country’s weather data services (Hess and Syroka 2005). Nicaragua. Nicaragua has introduced index insurance faster than other countries in Central America, owing largely to the availability of reliable, accessible weather data. The weather service, Instituto Nicaragüense de Estudios Territoriales (INETER), has played a key role in supporting market development of agricultural insurance, in turn providing confidence to the local industry, reinsurers and regulatory authorities. Much greater investment is needed to increase the density of historical weather data in agricultural areas and ensure the availability of data for contract monitoring. China – WRMF. Though the weather infrastructure in China is sound, access to data is problematical. Some 160 weather stations exchange data globally through the World Meteorological Organization (WMO), but access to both historical daily weather data and real-time daily data is considered confidential and is thus very difficult. Increasing awareness and building capacity among the various partners could mitigate this constraint. In addition, effective roll-out of the waterlogging product in Huaiyuan would require a more robust infrastructure: waterlogging is not easy to record, in that a single, highly localized event may drive the bulk of the loss (Case Study 4). United States – rainfall and vegetation index insurance. The use of new technologies offers promising solutions for the lack of weather infrastructure or quality data. Under the Pasture, Rangeland, Forage Vegetation Index (PRF-VI) Pilot Programme, payments are based on a vegetative ‘greenness’ index examined in grids of 4.8 square miles, using satellite image data from the U.S. Geological Survey’s Earth Resources Observation and Science Center (EROS), and the National Oceanic and Atmospheric Administration (NOAA) (Case Study 7). Mexico. Though Mexico’s disaster relief programme has grown significantly in terms of the surface area insured, its expansion has been constrained by a lack of weather stations to guarantee efficient data flow and an optimum risk valuation process. Mexico has approximately 1,200 conventional weather stations that report in semi-real time, managed by the National Water Commission (CONAGUA), but only half are located in regions where insurance is offered. A possible solution would be to incorporate the new network of 764 automated weather stations constructed by Fundación PRODUCE, the private rural producers’ association, into the insurance programme, but these have only three years of weather data. In response, AGROASEMEX has developed a methodology using reanalysis techniques to obtain a simulated series of weather variables, thus compensating for the lack of historical weather data (Case Study 1). 47
48 CHAPTER 3 KEY DRIVERS OF SUSTAINABILITY AND SCALABILITY OF WEATHER INDEX INSURANCE Brazil. To improve sales of an area-yield index insurance product, AgroBrasil and SAA developed a software application called AgroNet ® . Installed at seed distribution points, it cross-checked information on farmers’ seed requests with municipal insurance data, such as the sum insured and area-yield index of that municipality. The AgroNet ® system allows AgroBrasil to exchange information with SAA at the time of purchase. SAA then centralizes information on each municipality and submits a daily, validated electronic report back to AgroBrasil. It also shares this report via the Internet with technical partners such as the ground sales team, and the insurers and reinsurers that use the report to issue policies and financial guarantees to reinsure the risk (Case Study 9). Other examples. In Ethiopia, NISCO sells index insurance through farmer cooperatives, taking advantage of low-cost automatic weather stations owned by the National Meteorological Agency (NMA). With support from WFP, NMA is testing the stations (Case Study 3). Similar ones are in use in index insurance in Kenya, where the Syngenta Foundation installed two low-cost automatic stations to support index-based insurance as a way to promote the use of high-cost, high-yield seed. Promote enabling legal and regulatory frameworks Since public-sector programmes and policies have an impact on commercial incentives, developing pilot projects alone is, of course, not enough to ensure market sustainability. Public-sector interventions are important to ensure that the conditions exist for private insurers to go beyond conducting pilot projects and start scaling up the business to reach massive numbers of smallholders. From the early stages, the public sector should support and invest in information, such as weather data and agricultural statistics, and ensure a proper formal regulatory environment. Donors and other stakeholders can play an important role in promoting such an enabling legal and regulatory framework for index insurance products (e.g. promoting enforceability of contracts within the supply chain). China – WRMF. In launching the first index insurance product in China, the experience of the WRMF reinforced the importance of involving the relevant government agencies in index insurance pilots – Ministries of Finance and Agriculture and the Chinese Insurance Regulatory Commission (CIRC) – in order to increase their understanding of the product and inform sound policy in agricultural insurance. Doing so has been particularly important in China, where as of 2009 there was no comprehensive law on agricultural insurance. As a result, decision-making can seem somewhat arbitrary – for example, there are no clear regulations on loss adjustment; CIRC has a general requirement, but the processes and procedures vary from company to company. In the WRMF pilot, regulators were very supportive of efforts to develop weather index-based insurance and
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124 Table 15: Forage Rainfall Plan:
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138 Figure 9: Khersons Oblast, 57 U
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Contacts IFAD Francesco Rispoli f.r
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The Potential for Scale and Sustainability in Weather Index Insurance

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