The Potential for Scale and Sustainability in Weather Index Insurance

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CASE STUDY 4
INDEX INSURANCE IN CHINA
facilitate the provision of weather data by the Anhui Meteorological Service, the broader
organization that includes the Research Institute, the Provincial Meteorological Bureau and
the county-level weather service.
Guoyuan Agricultural Insurance Company (GAIC) was selected to join the project. Apart
from underwriting the risk and subsidizing the pilot product, it participated in the product
design and has responsibility for marketing. Funded by 12 state-owned enterprises, GAIC
is the only specialized agricultural insurer in Anhui Province. It was also invaluable in local
coordination, communicating with township and village leaders, and organizing training
courses to enhance awareness.
Product information
A feasibility and demand study with all key stakeholders – including government agencies,
insurers and farmers – concluded that the major weather risks for paddy rice in Changfeng
are drought and high temperatures, while the major risk in Huaiyuan is waterlogging. 33
Thus the pilot product in Changfeng covered heatwave (temperatures above 35°C)
and drought. The indices had diverse triggers and a varying maximum payout amount
(see Table 9).
After the approval of drought and heatwave index insurance by the Chinese Insurance
Regulatory Commission (CIRC), the insurer, GAIC, sold a group insurance policy to Yanhu
village, which bought it as a complement to MPCI, as the latter does not cover drought risk.
Weather data and infrastructure
There are more than 2,200 provincial weather stations and 700 national stations in China,
which have 40-50 years of good quality historical weather data. Of these, 160 stations
share their data internationally through WMO. The pilot location was just a few kilometres
away from the main weather station.
Moreover, several decades of rain gauge data were available in the pilot area, so the
IFAD/WFP and Chinese experts used ‘historical burn analysis’, further supplemented by
farmer and local agricultural expert interviews, to calculate the index and the appropriate
premium price. 34
Table 9: Triggers for drought and heatwave pilot in Changfeng
Index type Time period Trigger
Cumulative rainfall index I 15 May - 31 August cumulative rainfall
for drought < 230 mm
Cumulative rainfall index II 1 September - 15 October cumulative rainfall
for drought < 15 mm
Heatwave index for 30 July - 15 August cumulative high temperature
high temperatures differentiation > 8°C
33 As mentioned, the waterlogging index insurance pilot in the end was only simulated, owing to time constraints.
34 ‘Burn analysis’ is a methodology for testing an index against historical data and determining when payouts
would have been made and what they would have been. The disadvantage of this analysis is that it may not
capture the possible extremes, and it may be too influenced by individual years in that historical period.