MR Microinsurance_2012_03_29.indd - International Labour ...
MR Microinsurance_2012_03_29.indd - International Labour ... MR Microinsurance_2012_03_29.indd - International Labour ...
90 Emerging issues Th e involvement of reinsurers is particularly critical to the success of such schemes, since they pool risk at a global level. In Asia, experts from Munich Re developed concepts suitable for typical climate-change risks, including a fl ashfl ood cover in Jakarta, Indonesia, and a “typhoon cover” for torrential rain and wind in the Philippines. Swiss Re introduced an index cover for rice farmers in Viet Nam, a country particularly aff ected by climate change. According to its developers, the programme should reach 500 000 households (Lai, 2010). Box 4.2 Drought insurance, Malawi Hard facts Start: 2005 Scale: Micro Model developers: World Bank, International Research Institute for Climate and Society (IRI), MicroEnsure Risk carrier: Insurance Association of Malawi Risk covered: Drought Number of clients: 1 710 groundnut and maize farmers (2006 to 2007); 2 500 tobacco and maize farmers (2008 to 2009) Distribution channel: National Smallholder Farmers’ Association of Malawi (NASFAM) Context As 90 per cent of crop production in in Malawi Malawi is rain-fed, smallholders are highly vulnerable to weather-related risks. Productivity is low, as farmers have limited access to credit to buy drought-resistant seeds or invest in better technology. In cooperation with NASFAM, the World Bank designed index-based drought insurance that would protect groundnut farmers against lack of rainfall and improve access to credit. Two MFIs, Malawi Rural Finance Company and Opportunity International Bank Malawi, were willing to provide loans. NASFAM provided access to improved seed input, guaranteed to buy its members’ harvest at a higher-than-market price and ensured loan recovery. Loan contracts included a weather premium that was paid to a risk pool managed by the insur- ance association. Farmers agreed to sell their harvest exclusively to NASFAM. Th ey received no cash in advance and instead NASFAM used the proceeds of the harvest to repay the loan and pay the surplus to the farmers. Th e product was expanded to include maize and, as of 2007/08, it has moved to the tobacco sector instead of groundnuts.
Microinsurance and climate change Challenges Financial viability: Financially stable, as no on-going subsidies included, but limited aff ordability for the poorest farmers. Side-selling by farmers to traders other than NASFAM threatened fi nancial viability and the programme therefore moved from groundnut production to the tobacco sector. Demand: Th e product has been diffi cult to sell to low-income farmers due to its price, so take-up has been slow. Client awareness: Training of fi eld staff is needed to provide fi nancial literacy workshops to the population. Where policies are in place, clients tend to under- stand the concept of index insurance. Basis risk: Insuffi cient number of rainfall stations; the World Bank and the Earth Institute are installing digital weather stations to overcome this constraint. Preliminary lessons lessons learned 1. Infrastructure challenges can be tackled by drawing on the fi nancial and tech- tech- tech- nical capacities of all project partners. 2. Cooperation among key stakeholders (insurance companies, farmers’ associa- associa- associa- tions, MFIs) expands the range of fi nancial products available for the rural population. 3. Th e existence of organized markets (e.g. NASFAM) is crucial for distributing insurance policies. 4. Combining insurance with loans increases the effi ciency of insurance delivery. Sources: Adapted from Hellmuth et al., 2007; Mapfumo, 2009; Agroinsurance, 2011. 91
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<strong>Microinsurance</strong> and climate change<br />
Challenges<br />
Financial viability: Financially stable, as no on-going subsidies included, but<br />
limited aff ordability for the poorest farmers. Side-selling by farmers to traders<br />
other than NASFAM threatened fi nancial viability and the programme therefore<br />
moved from groundnut production to the tobacco sector.<br />
Demand: Th e product has been diffi cult to sell to low-income farmers due to its<br />
price, so take-up has been slow.<br />
Client awareness: Training of fi eld staff is needed to provide fi nancial literacy<br />
workshops to the population. Where policies are in place, clients tend to under-<br />
stand the concept of index insurance.<br />
Basis risk: Insuffi cient number of rainfall stations; the World Bank and the<br />
Earth Institute are installing digital weather stations to overcome this constraint.<br />
Preliminary lessons lessons learned<br />
1. Infrastructure challenges can be tackled by drawing on the fi nancial and tech- tech- tech-<br />
nical capacities of all project partners.<br />
2. Cooperation among key stakeholders (insurance companies, farmers’ associa- associa- associa-<br />
tions, MFIs) expands the range of fi nancial products available for the rural<br />
population.<br />
3. Th e existence of organized markets (e.g. NASFAM) is crucial for distributing<br />
insurance policies.<br />
4. Combining insurance with loans increases the effi ciency of insurance delivery.<br />
Sources: Adapted from Hellmuth et al., 2007; Mapfumo, 2009; Agroinsurance, 2011.<br />
91
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