World Food Programme and Oxfam to expand access to weather-index insurance

by Artemis on December 7, 2010

The U.N World Food Programme (WFP) and Oxfam have announced a new scheme which aims to help poor rural people protect their crops and livelihood from the impact of climate change. The announcement was made in Cancun at the ongoing climate change meetings.

The new scheme seeks to encourage rural farmers in developing countries to help protect their communities from the effects of climate change and in return will pay their premiums for weather index insurance to protect their crops from weather extremes. The idea is that community members will be encouraged to work on irrigation and forestry projects which will benefit their villages by reducing the impacts of climate change in return for free crop weather insurance.

It’s hoped that this scheme will help to educate the local communities about the risks of climate change and the benefits of community based projects to lessen the impacts. It will also demonstrate the benefits of microinsurance to protect their crops from weather.

The WFP and Oxfam are seeking $28m from investors to enable them to roll out this scheme.

More details are available here from PR Newswire.

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FRANCIS M NGARI December 18, 2010 at 11:01 am

Dear Team,

This good news that The U.N World Food Programme (WFP) and Oxfam have announced a new scheme which aims to help poor rural people protect their crops and livelihood from the impact of climate change.

APA insurance has successfully piloted Index based weather insurance products in kenya for maize crop both for large scale farmers and small scale farmers.
This has been through the technical support of the Worldbank CRMG.
Aproduct for wheat crop is currently being marketed to commence in february.
Other products that are under pilot include bananas , product for coffee will hopefully be rolled out in the new year 2011.
Our experince so far has been that the product is well recived by smallholder farmers who are extremely vulnerable when drought strike.
The impact has been range from:
FOR FARMERS
1.Gives farmers the ability to mitigate drought risk for their crop through a transparent insurance product.
2.Secure access to finance and inputs for improved production
3.Improved production and revenues due to ability to employ the best inputs.
4.Introduction in to cash economy when they open bank accounts.
5.Transformation from subsistence farming to commercial farming.
6.Access to better crop husbandry knowledge due to involvement of Ministry of Agriculture Extension workers in the in designing and implementing the product.
7.Streamlined and low transaction cost of input procurement and delivery.

FOR BANKS
1.Allowing banks to expand their lending portfolios in rural areas.
2.Delimiting lending to the agriculture sector otherwise viewed as risky.
3.Banks with bancassurance subsidiaries have new source of revenue production in terms of premium commission from insurance underwriters since they act as intermediaries.
4.Expansion of customer base in the rural areas as farmers open bank accounts for the Agricultural loan processing

FOR INSURERS
1.New product development.
2.low cost of administration
3.Trust and confidence building towards insurance product due to transparency involved.
4.Easy access and uptake of insurance products
5.Establishment of new distribution channels for insurance products.
6.Product penetration in the country.

OTHERS
1.Investors: increased demand for agricultural inputs and services (plaughing and spraying) in agricultural sector.
2.Predictability of demand for input by farmers hence agro dealers able to do forward planning.
3.Easy and straight forward business transaction from supply to settlement of invoices.

GOVERNMENT
1.Economy: wealth protection value creation in the rural population.
2. stability in the agriculture sector and enhanced food security .

CHALLENGES AHEAD
There are Challenges facing up scaling Index Based Weather Insurance product in developing countries that we I can foresee :
1.Availability of weather data in the right format soft copies or in the system and quality of data(gaps in the data contribute to high pricing by Re-insurancecompanies due to uncertainity)
2.Weather station infrastructure is not the right one i.e. need to install/upgrade with automated weather station. This cannot be done by government alone due to budgetary constrain I suspect. Insurance company cannot do it either since this is supposed to be for national good, but need it.
3.Weather insurance premium rates are high not less than 10% due to the risk. Adding to interest rate on loan about 10 %( those who don’t have, get it hard) compared to property insurance like fire policy for a greenhouse which is 0.8% the highest on average.
WAY FORWARD FOR YOUR INTENDED SUPPORT
1.Support in subsidizing insurance premium for index based weather insurance product which is okay under FAO
2.Support installation and upgrading Weather station in areas where products are developed by procuring them.
3.Support insurance companies engaged in Index based weather insurance product development, Marketing APA insurance being one.
4.Support in awareness creation on working of Index insurance among the rural community since knowledge of insurance is still very low.

We would be glad to hear your plan.

Kind regards.

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