An project called Food Early Solutions for Africa (FESA) has been working on validating a microinsurance product for African farmers which will use satellite technology to measure drought conditions. This allows them to create an index against which a microinsurance drought product can be triggered.
Their approach is based on collecting Meteosat data for temperature, radiation and evapotranspiration which are then used to generate crop yield estimates or indices. From this they can derive drought probability statistics for each location on a 3km grid. In particular this project is using relative evapotranspiration and relative yield as the main indicators for drought and crop failure.
The first phase of this pilot has now been completed and published in a paper. The study concluded that Meteosat relative evapotranspiration is the most suitable index for drought insurance as it has the lowest basis risk, represents water use by crops and is closely tied to crop growth.
They aim to break the region down into climatic zones where each has a specific sowing window and a specific relative evapotranspiration trigger derived from the historical database they have created. From this they say a single fixed premium parametric contract becomes feasible, where only the location of the insured has to be determined and contract parameters can then be read to determine claims.
It sounds like another interesting development which could be of great benefit to the population of drought prone regions of the world. Clever use of technology (such as satellites) could prove to be the factor that makes microinsurance feasible and affordable for both insurers and the insureds.