We’ve been following the development of the microinsurance market for weather index insurance with great interest at Artemis. As a product it seems perfect for developing nations as it is easily understood and gives predictable payouts based on actual weather conditions. Weather index insurance has received the backing of organisations such as the World Bank and now major re/insurers are getting involved, but still reports emerge that suggest it’s not accessible enough to really help the people it’s designed to.
In Rwanda a lack of rain during the September to March season has resulted in a forecast of a drop in the Rwandan economy of 5.4% due to the slow agricultural performance. While economic growth is projected to fall to 7% (from 7.4% last year). Almost 80% of the Rwandan population are employed in the agricultural sector which contributes 30% of the countries GDP.
Rwanda has two growing seasons (A and B). Season A (the September to March period) was so bad that the government have been telling farmers to put all their efforts into Season B this year. However, the seasonal rains expected at this time of year have not yet started and the outlook for season B is now not good.
There is a lack of weather insurance in Rwanda. There are microinsurance projects in the country though, including the MicroEnsure weather index crop insurance product. It’s beginning to look like the weather insurance pilots in countries like Rwanda have been unable to scale sufficiently to make a real difference to the countries economic prospects.
Because of the lack of available weather insurance farmers are finding it difficult to access any funding as the financial institutions in the country are risk averse and it’s obvious that a lack of weather insurance in a climate such as Rwanda’s makes it very difficult to offer loans with any certainty of payback. The Rwandan government continues to talk with insurance companies and banking institutions to improve the support farmers are getting.
Sadly we feel this situation was always likely to occur as microinsurance and microfinance gets up to speed. The inability to grow a microinsurance program to scale up to country level is not the fault of the provider. The nature of the countries that microinsurance targets means that it is difficult to achieve the scale required to help the population quickly. The best we can hope for is that the insurance industry sees an opportunity here to access new markets customers and that gradually the roll out of weather index insurance products accelerates in the developing world. If that doesn’t happen then unfortunately the industry will risk the local populations losing faith in their ability to help.