AGRICULTURE / FINANCIAL MANAGEMENT
Weather-linked insurance policies could benefit farmers
PARISTA YUTHAMANOP
Insurance policies based on weather indices could be an alternative tool to strengthen the insurance sector while benefiting farmers through lower premium costs, according to the World Bank.
Henry Bagazonzya, a World Bank expert on micro-finance, said the initiative was still in an early stage of development, but that pilot projects had shown that the plan could be made practical in developing countries.
Policies based on indices would pay compensation based on weather fluctuations from expected norms of rainfall, temperature and other conditions. This is in contrast to traditional crop insurance, where compensation is based on production yields.
Mr Bagazonzya said weather index-based insurance could reduce costs for insurers by eliminating the need for surveyors to visit farms to assess damages.
Benchmark indices would be created from weather data and the estimated impact of deviations on crop production.
In July 2006, the World Bank launched a pilot project for weather index-based insurance in Thailand in collaboration with the Bank for Agriculture and Agricultural Co-operatives for rice farmers in Phetchabun and corn farmers in Nakhon Ratchasima.
The two projects currently cover 35 farmers. The index for Nakhon Ratchasima is based on 50-year average rainfall data as recorded by the Thai Meteorological Department and water levels in the Pasak River.
Farmers receive compensation when rainfall falls below or exceeds the index. Eleven local insurers have joined the project to jointly offer a single policy with a 3% premium charge.
''The weather index can be an alternative to public subsidies which cover even those who are not really affected [by events]. And it is transparent in that we can determine compensation based on the trigger,'' Mr Bagazonzya said.
The World Bank initiated weather index-based insurance in 2002, with pilot projects in India, followed by Ukraine, Ethiopia, Malawi, Kenya, Tanzania, Thailand and Central America.
Mr Bagazonzya said the Indian project, supported by the micro-finance institution Basix and the insurance company ICCI Lombard, had proved quite successful, with 11,000 farms covered in 2006 compared with 200 in 2003.''The success shown in the pilot projects showed that weather insurance for farmers is feasible, although it remains at an early development stage,'' he said.
The project would target small-scale farmers more effectively than other insurance types due to lower premiums.
But incomplete meteorological data in some locations represent a key challenge in making the service available.
[url=Weather-linked insurance policies could benefit farmers]Bangkok Post Nov. 3, 2007[/url]