GlobalAgRisk Inc has started a research programme looking to develop new index-based weather risk management tools and pilot test them in developing countries. The products will be created with the aim of helping smallholder farmers to continue to farm their land safe in the knowledge that major losses from local climate risks will be covered.
The program involves work in Peru to create an index insurance product to protect against an extreme El Nino. An El Nino can create severe catastrophic flooding in the north of Peru and farmers currently have no protection at all against this risk. At the same time as focusing on the creation of this specific market GlobalAgRisk are also undertaking an outreach program to promote the benefits of these types of products around the globe, no doubt looking for new opportunities too. They are working with the University of Kentucky on further research too and have been awarded a grant from the Bill and Melinda Gates Foundation to help their work too.
Micro-insurance and other forms of micro-finance are becoming increasingly important as traditional insurance products fail to be affordable or provide cover at the right level for farmers in developing countries. Index insurance is just the first product to be derived from the wider alternative risk and weather risk markets. We hear talk of research programs looking into mini-cat bonds (by way of selling on a portion of a cat bonds protection to business owners) and mini-weather derivatives (which would allow farmers and business owners to hedge more affordably against temperature risks). This market is definitely one to watch and is fast becoming the most widely accepted market for weather risk transfer.