Index-based risk transfer tools for developing nations

by Artemis on June 26, 2009

Since we began the Artemis blog one of the topics which has interested us, and hopefully our readership, is the innovation occurring in the re/insurance and risk transfer markets as they seek to provide mechanisms for people in developing nations to hedge and protect themselves against weather extremes. The development of products and initiatives which pay for losses based on a an index scale of actual measured weather conditions is the fairest way to do this for farmers and smallholders in countries such as India and Malawi. Searching this blog for terms such as ‘microfinance‘ or ‘micro-insurance‘ will give you a flavour of the coverage we’ve given this topic.

A new report from the International Research Institute for Climate and Society, a United Nations backed research venture, has published a new report on the topic which contains case studies on example products such as drought coverage, cover linked to livestock deaths, wind linked and rain or moisture linked products.

There is still a long way to go before these products provide total protection to the people who seek the cover. At the moment the products are showing some shortcomings as farmers in India (for example) complain that they can face a total loss without actually hitting the trigger point on the index which signifies a payment. Despite these shortcomings further development of these products are essential both as a way to protect the livelihoods of those in developing countries but also as a way to trial new and innovative products which could eventually be adopted in the developed world as well.

You can access the full report here.

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