Scaling-up index insurance for small-scale farmers

A new study by the climate change programme of the CGIAR gives decisive evidence that large-scale index-based insurance is a commercially viable option for the rural poor, and outlines the key traits of successful index insurance schemes.

The new study, “Scaling-up index insurance for small scale farmers”, carried out by the Research Program on Climate Change, Agriculture and Food Security (CCAFS) of the Consultative Group on International Agricultural Research (CGIAR) and the International Center for Climate and Society (IRI) at Columbia University (New York/USA) showcases projects that have overcome many of the challenges that have previously hindered the uptake of index-based insurance, such as poor infrastructure and lack of financing, and have gone on to scale to reach millions of smallholder farmers in some of the poorest areas of the world, many of which were previously considered uninsurable.

According to Dr Dan Osgood, co-author of the study, a large number of countries are leading a movement to increase insurance coverage for the most vulnerable farmers. Osgood believes that this shift could change the lives of millions of smallholder farmers across the globe who face increasingly erratic weather because of a changing climate.

One example of large-scale change comes from Nigeria, a rapidly growing agricultural producer which has committed to covering 15 million of its smallholder farmers with agricultural insurance by 2017. While traditional loss-based insurance is not viable for smallholder farmers in environments like rural Nigeria, because of the high cost of verifying losses on large numbers of small landholdings, index insurance payouts are pegged to easily measured environmental conditions, or an “index,” that is closely related to agricultural production losses, note the authors of the study. Possible indices include rainfall, yields or vegetation levels measured by satellites. When an index exceeds a certain threshold, farmers receive a fast, efficient payout, in some cases delivered via mobile phones.

The new study also examines case studies from Kenya, Rwanda, Ethiopia, Senegal, Mongolia and India.

According to lead author Dr Helen Greatrex, the rapid growth of the initiatives that are profiled in the study is a bold statement about the potential of index insurance to overcome the tough challenges we face in providing a safety net for millions of the poorest farmers.

The report identifies key traits of successful index insurance schemes, comprising:
• Including farmers in the design process
• Integrating insurance into broader development and climate risk programmes
• Working with policy-makers, market leaders and businesses to develop supply chains and legislative frameworks
• Investing in farmer education
• Working closely with research organisations for agro-meteorological and social knowledge
• Unlocking new opportunities to improve farmer income

Major reinsurance companies such as SwissRe and MunichRe have backed weather-based index insurance as sound investment, notes the study.

More information:

Related articles:
Rural 21 Special issue on Insurance for agriculture

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