Insuring crops against unforeseen weather events is a standard practice among farmers in rich countries.
insurance is either unavailable or is very expensive in many developing
countries, leaving small farmers particularly vulnerable.
severe drought, a devastating earthquake or another weather disaster can
wipe out small farmers. Such uncertainties also make them more risk
averse and less likely to invest in their farms.
the traditional individual and group-based underwriting and
indemnity-based products aren't serving developing countries, index
insurance is an alternative approach more suitable to insuring poor
farmers in hard to reach areas.
pays out benefits based on a predetermined index for loss of assets and
investments resulting from catastrophic events, unlike traditional
insurance which depends on insurance claims assessors to evaluate the
damage. A statistical index is developed before the start of the
insurance period to measure deviations from normal for such parameters
as rainfall, temperature, seismic activity, wind speed, crop yield or
livestock mortality rates.
This approach can help stabilize poor
farmers' income, allowing them to continue farming regardless of
disaster and weather uncertainties.
A global conference on index insurance
is underway in Paris this week, bringing together development partners
and the private sector to discuss how to expand index insurance to
address the growing risks and impacts of climate change and natural
Rising climate change risks and weather-related losses
could have a devastating impact on the world's most vulnerable
populations over the next generation.
losses and damage have risen from an annual average of about $50
billion in the 1980s to close to $200 billion over the last decade,
according to the World Bank's report The Building Resilience: Integrating Climate and Disaster Risk into Development.
While index insurance can't shield agriculture from climate change, it can help mitigate its effects.
can also help to decrease the financial vulnerability of billions of
people, providing them with a means to access finance and credit.
We need to dramatically scale up work in this area and find innovative
approaches to increase insurance coverage to the most under-served and
On average globally, approximately
one-third of the claims from total man-made and natural disasters are
covered by insurance, according to Swiss Re estimates.
the coverage varies greatly from developed to developing countries. For
example, for the 1999 floods in Austria, Germany and Switzerland, 43%
of damages were covered by insurance while only 4% of damages from
floods in Venezuela were covered in the same year. Only 10-15% of the
losses after Typhoon Yolanda in the Philippines were insured, compared
to 50% for the losses from Hurricane Sandy in the United States.
The World Bank Group
has been pioneering different types of index insurance products. With
donors support, our work has led to more than 35 million farmers
benefiting from new or improved index insurance products over the last
While new insurance products in emerging markets offer
growth opportunities for the insurance industry, commercial success
won't happen overnight. It can take between 10 to 15 years to make these
markets commercially viable.
This is why governments and
foundations should also champion and promote risk-management solutions,
and contribute capital during the incubation period.
This week's index insurance conference
is a call for dialogue and ideas, and for building stronger
partnerships with the private sector to promote innovations, especially
in agriculture insurance.
are challenges associated with building sustainable and scalable
insurance markets in developing countries, including uneven population
distribution, poor infrastructure, and a lack of reliable data. But
these challenges shouldn't hold us back from finding new approaches to
extending insurance to the most vulnerable.
sustainability of food production, especially in the poorest countries,
is critical to fighting hunger, tackling malnutrition and boosting food security for the world's population that is expected to reach 9 billion by 2050.
bold action now, the warming planet threatens to put prosperity out of
reach of millions of people and roll back decades of development