IFC, EU and Syngenta to expand East African weather index insurance

by Artemis on February 7, 2014

IFC, a member of the World Bank Group, has signed two grant agreements totaling $3.9m, with the Syngenta Foundation for Sustainable Agriculture to expand a weather index insurance pilot to over one million East African farmers.

Over the next two years up to one million small-scale farmers in Kenya , Rwanda and Tanzania are expected to benefit from coverage under the weather index insurance scheme, which pays out based on actual measured weather conditions using a parametric index trigger.

The pilot has been in operation for over a year, with 187,000 small-scale farmers in East Africa having benefitted from index insurance provided by the Syngenta Foundation’s agricultural index insurance initiative, Kilimo Salama.

These latest grants were issued by the Global Index Insurance Facility, a multi-donor trust fund financed by the European Union, Japan and the Netherlands and implemented by IFC and the World Bank.

Marco Ferroni , Executive Director of the Syngenta Foundation for Sustainable Agriculture, said; “The support from IFC and the EU has been instrumental in the expansion of our index insurance program. This year, our team aims to reach over 600,000 farmers, expanding the program to cover Tanzania as well.”

Much of the agricultural land in Kenya , Rwanda and Tanzania is rain fed and some regions are vulnerable to drought and erratic rainfall levels. Many smallholder farmers limit their losses to extreme weather by making minimal investments into their land, leading to reduced yields and continued food insecurity for local populations.

Traditional indemnity-based agricultural insurance has seen little success due to high transaction costs and premiums. Where as index-based insurance, which pays out on the basis of weather data without any costly field verification of losses, is seen as a more efficient risk management tool.

David Crush , IFC Manager for Access to Finance in Sub-Saharan Africa, commented; “Index insurance helps to strengthen the livelihoods of small-scale farmers, which is one of the most important tasks in the quest to fight poverty and foster inclusive and sustainable economic growth in Africa and elsewhere.”

As these index insurance pilot projects expand the amount of parametric based weather and catastrophe insurance coverage in emerging economies is steadily growing. This is one area that reinsurance firms and the capital markets will be needed to provide coverage for these growing index based insurance programs.

In the future, should index based insurance grow to cover more of the emerging regions of the world there may be an opportunity for parametric triggered reinsurance solutions such as catastrophe bonds to provide the ultimate risk transfer for them. This could ultimately provide an opportunity for the cat bond market to grow into new regions of the world.

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