IWMI partnerships extend insurance offerings

Natural disasters such as floods hit smallholders disproportionately hard. These farmers have very little savings and often need to borrow money for house repairs and to replant damaged crops. Even if offered, insurance is out of reach for most farmers. Therefore, disasters often push poor farmers deeper into debt, as they cannot repay existing loans while also having to borrow more money. Over the past three years, IWMI has successfully tested new, high-tech index-based flood insurance (IBFI) products. The products are simple, flexible and affordable, and increase the resilience of farmers to climate change. Governments have responded enthusiastically.

Index insurance is a relatively new tool that farmers can use to help manage risk. It uses an objective index, such as rainfall, which can be measured at a local weather station or by satellite, to determine the payout, rather than using some consequence of weather, such as crop yield. It is important to assess the damage from afar, in order to avoid costly field visits by insurance experts. For floods, this has meant assessing the risk of flooding in particular areas by examining decades of images gleaned from the Moderate Resolution Imaging Spectroradiometer (MODIS) of the National Aeronautics and Space Administration (NASA) and the European Space Agency (ESA) Sentinel-1 satellites, and others. These data are combined with hydrological and rainfall data to construct a model of the likelihood of inundation. When an area floods, researchers can use current weather data and satellite images to quickly calculate the extent of flooding and trigger rapid insurance payouts.

The other important feature of IBFI is to ensure that farmers understand the insurance product being offered and can afford the premiums. This has required working closely with microfinance institutions (MFIs), which have strong ties in communities, understand their cultures and are well trusted by farmers.

MFIs organize meetings to enable farmers to learn how the insurance works. It is important that farmers understand the scheme and how it operates in some detail, so that they do not have unrealistic expectations. MFIs can also offer loans specifically to pay the premiums, and can remit this in bulk to the IBFI scheme. Although MFIs can reduce the cost of collecting premiums from individual farmers, government subsidies may still be needed to make the premiums affordable. Nevertheless, for the government, insurance subsidies can be more cost-effective than disaster relief.

Weather index insurance has proved valuable in empowering women in pilot studies in Bangladesh. In addition to the threats of flooding, women face further difficulties due to the migration of men in search of better employment elsewhere. Even after men have left the farm, women still have little say over how to spend household money. With premiums paid through the mutually supportive self-help groups established by MFIs, women can be confident that their family will be able to survive a flood. Rapid payouts help to maintain food security by allowing women to purchase food for their families when their own harvest has failed.

IWMI has also used the IBFI model to develop products for droughts. By using satellite images and remote measures of soil moisture to assess the extent of the drought, IWMI developed the South Asia Drought Monitoring System (SADMS), an index that integrates information on vegetation, soil moisture and temperature. In 2019, IWMI and the Indian Council of Agricultural Research (ICAR) shared weekly drought maps with agricultural extension services and state authorities to assist with the preparation of drought contingency plans to help farmers manage drought risks and to also trigger insurance payouts.

In 2019, IWMI launched the Bundled Solutions of Index Insurance with Climate Information and Seed Systems to manage Agricultural Risks (BICSA) project. The BICSA project offers insurance against floods and droughts as well as seed varieties developed for their tolerance to flooding and drought. Through the project, farmers also receive short message service (SMS)-based weather information, and advice on crop and water management. The BICSA package trial covered 1,000 households, of which 450 benefitted from an insurance payout that totaled approximately USD 12,500. Therefore, the project offers an effective strategy to build climate resilience.

In December 2019, we shared the experience gained in the various pilot projects during a regional consultation with the South Asian Association for Regional Cooperation (SAARC). Participants were given details about how the schemes work and results to date, along with practical next steps to encourage the uptake of weather index insurance in their own countries.

The IBFI project is funded by the CGIAR Research Programs on Climate Change, Agriculture and Food Security (CCAFS) and Water, Land and Ecosystems (WLE), and the Indian Council of Agricultural Research (ICAR).

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