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
Financial intermediaries
AGROASEMEX is also investigating the potential of selling index insurance products
directly to farmers instead of solely to governments. The objective is to drive the growth
of index insurance by attending to the needs of the low-income rural population more
efficiently and sustainably.
Since poor rural smallholders are generally excluded from financial services, the idea is
to link this risk-transfer scheme under a collective or group insurance approach, using rural
producers’ organizations to perform microinsurance intermediation. AGROASEMEX has
calculated that by outsourcing to large intermediaries that have a stronger presence in rural
areas, operational costs and the risk of moral hazard could be reduced.
The possibility of operating and managing insurance under a partner/agent model is
under study. In this approach, the risk is assumed by an insurance company and the
microfinance institution performs sales and customer service functions, restricted
exclusively to its partners, under a collective insurance contract that can be linked or not to
credit. AGROASEMEX estimates that this operational model creates institutional synergies:
each party (microfinance institution and insurance company) provides the service(s) in
which it has expertise, creating advantages for the microfinance institution, the insurance
company and the insured party. Feasibility studies are being completed, and
AGROASEMEX has initiated a series of meetings with several microfinance institutions
interested in future projects.
ANNEX
73