The International Finance Corporation (IFC), a member of the World Bank Group, has officially launched the long awaited Global Index Insurance Facility. I’ve written about the facility in the past when it was still in pilot phase but now it has been launched in partnership with the European Commission and the Netherlands’ Ministry of Foreign Affairs.
The facility is an index-based insurance scheme set up to allow farmers and others in developing countries such as Africa and the Caribbean more easy access to insurance for natural disasters and weather risks. Payouts will be based on the severity of an event which will help to take the uncertainty out of the policies for the insured. It also reduces transaction costs, makes insurance more predictable and makes it more easy to offer products and services in rural and developing countries. We hope the facility makes its policy wordings very clear and addresses issues experienced by other facilities (such as the Caribbean Catastrophe Risk Insurance Facility which I’ve written about previously here) when it comes to events that fail to meet the index levels required to trigger payouts. It’s vitally important that the local farmers and business people seeking cover understand what the limits are, it’s essential to get their buy-in.
The full press release from the IFC is below. You can read more about the Global Index Insurance Facility at their website.
IFC Helps Expand Access to Natural Disaster Insurance for Emerging Market Farmers
Nairobi, Kenya, December 2, 2009— IFC, in partnership with the European Commission and the Netherlands’ Ministry of Foreign Affairs, today launched a program to help farmers and others in developing countries more easily access insurance for natural disasters to protect themselves from weather-related risks. IFC is a member of the World Bank Group
The Global Index Insurance Facility is an index-based insurance scheme that insures against certain catastrophic events, depending on their severity. For example, insurance will be paid out in the event of a wind storm of a certain category, or an earthquake registering a certain magnitude on the Richter scale.
Index-linked insurance products eliminate the need for insurance companies to individually verify claims, reducing transaction costs and making it easier for them to offer products and services in rural communities and in frontier regions, where insurance is rarely available.
Jean Philippe Prosper, IFC Director for Eastern and Southern Africa, said, “The Global Index Insurance Facility will help protect farmers and vulnerable communities against natural disasters that can wipe out their livelihoods and trap them in poverty.IFC is committed to helping extend financial products and services to places where the private sector is at the early stages of development, creating more opportunities for people that need them the most.”
The facility is backed by an advisory services and capacity building program that will provide substantial funding to raise the capacity of insurance companies to provide index-based insurance, help develop such products, and work to create a favorable regulatory environment by advising governments on possible regulatory changes.
The European Commission has committed €24.5 million as the first donor to a trust fund to finance the advisory services support. The fund is also supported by the Dutch Ministry of Foreign Affairs.
Bernard Rey, Head of Operations of the European Union Delegation to Kenya, said, “As the threats posed by climate change increase, the Global Index Insurance Facility will help people in Africa, the Caribbean, and Pacific regions reduce their vulnerability to external shocks and natural disasters and thereby support their livelihoods.”
IFC is the only international financial institution focused exclusively on the private sector, the engine of sustainable development in emerging markets. Along with IBRD, IFC is currently seeking a capital increase to strengthen its ability to create opportunity for the poor in developing countries—including helping farmers and others access insurance.