IFC, SANASA in weather index insurance pilot for Sri Lankan farmers

by Artemis on April 27, 2012

The IFC (International Finance Corporation), part of the World Bank Group, has partnered with micro-insurance company SANASA Insurance to pilot affordable, index-based weather insurance products to farmers in Sri Lanka to help minimise the impact of crop losses due to flooding or drought. It’s another example of index-based insurance products being used to bring insurance products to people who previously could not afford them or where the products were not linked to actual elemental conditions.

IFC is helping SANASA Insurance expand access to insurance for up to 15,000 small farmers by offering protection against weather-related risks and natural disasters for their food crops. The project will also raise awareness among 50,000 farmers on the availability and benefits of these index-based insurance products. If the pilot is successful it’s likely the products will receive a wider rollout across the country.

“IFC is an invaluable partner in our commitment to empower the Sri Lankan farmer through flexible and affordable insurance to help mitigate weather-related risks,” said Dr P. A. Kiriwandeniya, founder of the SANASA movement.

Index-based insurance products pay out benefits calculated using a pre-assigned value for losses arising from weather or catastrophic events. Index-based insurance products eliminate the need for insurance companies to individually verify claims, reducing transaction costs and making it easier and faster for products and payouts to be offered to rural communities. They are also much easier for farmers in developing nations to understand than traditional indemnity claim insurance products.

“These insurance products, designed in collaboration with SANASA, will improve the livelihoods of small farmers in Sri Lanka by reducing the impact of adverse weather conditions,” said Adam Sack, IFC Country Manager for Sri Lanka and Maldives.

Once these types of index or parametrically triggered weather and disaster insurance products rollout across the developing world there is going to be a need for reinsurance and therefore risk transfer for that risk. The fact that the risk is linked to indices or defined triggers means that it will likely be a candidate for risk transfer through securitization or derivatives if the capital markets are called on to supply capacity.

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