SEADRIF and FAO launch first parametric drought insurance pilot in Lao PDR

The SEADRIF Insurance Company and the Food and Agriculture Organization of the United Nations (FAO) have launched an anticipatory drought insurance pilot in Lao People’s Democratic Republic (Lao PDR), the first time a Southeast Asian government has secured parametric insurance specifically designed to deploy pre-arranged finance ahead of drought impacts.

According to SEADRIF, the insurance pilot provides the Ministry of Finance of Lao PDR with access to payouts triggered by early warning data signaling elevated drought risk, before drought majorly affects farming households and rural communities.

SEADRIF explained that financing is activated when the Combined Drought Index, which is monitored by the Department of Meteorology and Hydrology and combining observation and forecast data, crosses a defined threshold.

“Drought is the single largest disaster risk in Lao PDR, with approximately 1.2 million people exposed annually and average annual losses estimated at US$672 million, around 3.5% of GDP,” SEADRIF noted.

On top of this, with meteorologists pointing to a possible return of El Niño conditions in 2026-27, SEADRIF highlighted that the need for drought anticipatory action has become more urgent than ever.

By linking these early warning systems with pre-arranged financing, this pilot empowers the government to act before drought impacts intensify, helping protect both the agricultural sector and rural livelihoods in the moment action matters most.

Under this pilot program initiated by SEADRIF and FAO, the resulting payouts will support essential government-led anticipatory measures, which include the following actions:

The distribution of early warning messages through village loudspeakers, a process supported by targeted training for community leaders, such as deputy village heads and volunteers. This capacity-building initiative is jointly overseen by the Department of Meteorology and Hydrology in partnership with Lao National Radio.

The payouts will also provide aid towards training on drought-resistant cropping techniques and water and irrigation management supported by the National Agriculture and Forestry Research Institute.

Benedikt Signer, CEO of the SEADRIF Insurance Company, commented: “Anticipatory action aims to reduce harm before drought becomes a full-scale crisis for communities. This pilot tests how anticipatory insurance can help governments act earlier, providing pre-arranged financing at the moment it can make the greatest difference. The lessons from Lao PDR will inform SEADRIF’s regional approach to drought risk financing.”

Deliberately structured as a limited-size sandbox, SEADRIF also highlighted that the pilot’s primary purpose is to validate the institutional mechanisms required for anticipatory financing such as inter-ministerial coordination, the claims and payout process, and funds-flow systems within government.

The company also confirmed that payouts will be used in line with standard operating procedures co-developed by FAO with the Ministry of Finance, Ministry of Agriculture and Environment, Ministry of Labour and Social Welfare, and the Department of Meteorology and Hydrology.

In addition, the policy is structured as a drought extension to Lao PDR’s SEADRIF multi-peril parametric sovereign insurance policy, that was launched in 2025, which delivered a US$2 million payout in September 2025 following cumulative impacts from Tropical Cyclones Wutip and Wipha.

Thevarack Phonekeo, Deputy Director-General, Department of Planning and Cooperation, Ministry of Agriculture and Environment, Lao PDR, said: “This pilot provides a pathway to strengthen Lao PDR’s preparedness for drought and the protection of rural communities. Through this partnership with SEADRIF and FAO, we are working to ensure earlier and more predictable support for people affected by climate-related risks.”

Kyung-Mee Kim, FAO Representative to Lao PDR, added: “Rural communities are on the front line of climate change, with drought increasingly affecting agriculture and food security. This pilot is an important step toward ensuring support reaches communities earlier, when action can still reduce losses and protect livelihoods.”