80016 Global Index Insurance Facility (GIIF) Expanding Access to Index-Based Insurance in Developing Countries August/September 2012 Newsletter (Issue #3) Creating Agricultural Insurance Markets The Global Index Insurance Facility that implementing partners should use (GIIF) is an innovative, global, IFC-led whatever mix of ground weather station program that is expanding access to and satellite technologies that works best insurance against weather risks and for their projects. natural disasters primarily to farmers and Workshop participants also agreed that livestock herders. GIIF’s six implement- public-private partnerships and the right ing partners are building weather index regulatory framework will help ensure the insurance markets in nine countries in long-term sustainability of index-based Sub-Saharan Africa as well as in Sri Lanka, insurance in Africa. GIIF Implementing Partners at second annual and in South Asia. GIIF Workshop, Senegal September 2012 The World Bank is working closely Through the program, nearly 100,000 with regulatory agencies and govern- farmers are now covered by index insur- farmers when adverse weather negatively ments on regulatory issues and other ance and hundreds of thousands of impacts crops and livestock, such as the policy matters in Africa, Caribbean, and farmers have learned about agricultural 2010 and 2012 Kenyan droughts that led the Pacific (ACP) countries as well as in insurance and the benefits of covering risk. to livestock losses of 18-33% percent in Latin America. This includes West Africa, Through GIIF’s grants, our implementing parts of the country. where the regional insurance regulator partners have helped build capacity and At the second Annual GIIF Workshop CIMA recently adopted a new micro- create partnerships with 30 insurance in September 2012, implementing partners insurance code that allows for the sale companies, and over a dozen banks and shared lessons and challenges in scaling of index-based insurance products. microfinance institutions (MFIs). up their index insurance products to a By the end of the GIIF program, it Most importantly, farmers are learn- sustainable market level. It was agreed is expected that at least 250,000 farm- ing that index insurance can be trusted. that subsidizing premiums for selected ers will have index insurance protection, The implementing partners have made products will be used to reach scale. indirectly benefiting two million people. immediate payouts to several thousand Implementing partners will continue to It is also expected that the growth in farmers in Kenya and Rwanda after exces- work with banks, MFIs, agribusinesses, agricultural index insurance will lead to sive drought or rain as measured by weather and non-government organizations as a more robust agricultural credit market indexes. These payouts provide important aggregators to reduce costs and expand in countries where GIIF is active. seed capital for the economic recovery of their client base. There was also consensus HIGHLIGHTS FROM THE FIELD GIIF’s implementing partners continue to expand their insurance portfolios and geographic reach: MicroEnsure: For the first time, Kenya Commercial Bank is lending to farmers in Rwanda who have index insurance cov- erage through MicroEnsure. Of the more than 7,000 farmers who have bought index insurance in Rwanda, 400 farmers have secured agricultural credit bundled with index insurance coverage. (Tanzania, Rwanda) International Livestock Research Institute: In July 2012, ILRI launched a livestock index insurance project in Ethiopia based on insights gained from a pilot in Northern Kenya where ILRI representatives play a game to illustrate insurance products to Maasai herders in Kenya 3,000 livestock herders have already bought index insurance coverage. (Kenya, Ethiopia) Guy Carpenter is in the process of completing an index insur- PlaNet Guarantee: A technical meeting will be held in Paris on ance product design for implementation alongside the Cotton 15, 16 October with partners IFC, Swiss Re, CIRAD and EARS Institute of Mozambique in five major cotton growing districts to discuss the efficiency of weather indexes and how to scale in the country. (Mozambique) up. (Senegal, Mali, Benin, Burkina Faso) Sanasa has successfully implemented a weather index insurance Syngenta, has just launched its Kilimo Salama crop insurance in product for paddy and tea farmers in Sri Lanka. To date, over Rwanda and has installed eight weather stations in the country. 3,000 paddy and tea farmers have purchased index insurance. (Kenya, Rwanda) (Sri Lanka) Global Index Insurance Facility (GIIF) Expanding Access to Index-Based Insurance in Developing Countries Issue #3 | Page 2 Market Sustainability for Index Insurance An Interview with Ulrich Hess, Vice-President, Agricultural Insurance, MicroEnsure MicroEnsure, founded in 2002 by industries. So yes, index insurance is scal- Opportunity International, is the world’s able in Africa, and the coverage can reach first and largest organization whose exclu- two million farmers. sive focus is to address the mass market’s need to mitigate risk. MicroEnsure serves Q: How did you build up your portfolio over four million people around the world in Africa and how long did it take you to with insurance, including two million clients establish this market? in Africa – covering credit, life, agricul- A: MicroEnsure started to build its tural, health and funeral insurance. The micro-insurance market in Africa in 2004 majority of their clients have never been and expansion came fairly quickly using insured before. mobile telecom providers as a distribution In an interview, Ulrich Hess discusses channel. Farmers and the market trust the global micro-insurance market and the immediacy of mobile technology. We why agricultural insurance has tradition- started working with GIIF in Rwanda in 2011 to insure 935 farmers, and we hope Ulrich Hess ally been a more challenging product to sell. Index insurance solves some of the to provide coverage for 30,000 farmers across Africa by early 2013. By 2020, we Q: Do you think index insurance has hurdles. He elaborates on the key public hope to reach at least 500,000 farmers the potential to improve farmers’ harvests and private investments needed for scal- in Africa with index insurance coverage. and incomes through increased agricultural ing up the index insurance market – both credit and improved inputs? financial and in terms of infrastructure needed, the various risks involved and Q: How do you plan to scale up to A: Traditionally banks have been the promise that weather index insurance a sustainable index insurance market in reluctant to lend to farmers in develop- holds for low-income farmers worldwide. Africa in the long term? ing countries even though the agricultural A: Public-private partnerships will be sector is important economically in terms Q: Can GIIF hope for a major expan- key to building the infrastructure and of GDP and employment. Hopefully, index sion in Africa now that the pilot projects market support for index insurance in insurance can expand agricultural credit are firmly established? Africa. There are four major needs: more markets substantially and improve farmers’ automatic weather stations; better histori- incomes and harvests. A: Traditionally, agricultural insurance cal weather data; affordable online access In India, there are 20 million farmers has been a hard sell as there is no stan- to weather databases; and an enabling with agricultural insurance: 3.5 million dard product and the risk is widespread. regulatory environment that allows for farmers are covered with weather-based The rate of agricultural insurance is non- the commercialization of weather index index insurance and 16.5 million farmers existent in most African countries and products including smart government are covered by area yield index insurance. reaches only 1.8% of farmers in South subsidies for insurance premiums that Most of the farmers were able to get agri- Africa, the continent’s most developed do not distort the market but provide a cultural credit tied to insurance, and they country. Weather index insurance has solid foundation for poor farmers. It is used the credit to take on risk. They bought been a breakthrough as it is much more also important to focus initially on a select better inputs (seeds, fertilizer, pesticides) scalable and easily standardized due to group of countries in the region which and planted higher value cash crops. the measurable weather indexes. Good weather data is critical for measuring risk present the most promising markets for and attracting the insurance and credit index insurance. UPCOMING EVENTS 11 October, 2012 16 October 2012 Brussels Brussels Open Day Event of the ACP’s Department of Sustainable GIIF at the European Development Days Economic Development and Trade 6-8 November 2012 15-16 October 2012 Dar es Salaam Washington DC 8th International Micro-insurance Conference World Bank International Insurance Symposium Global Index Insurance Facility (GIIF) Expanding Access to Index-Based Insurance in Developing Countries Issue #3 | Page 3 WHAT IS GIIF? an anticipated amount of rain. timely payout, reduces administrative This innovative approach to insurance costs, and provides a standardized and Index-based insurance pays out ben- provision means that policyholders qualify transparent structure. The product can efits on the basis of a parameter or a for pay-outs as soon as the statistical also be combined with other financial pre-assigned value for losses resulting indexes are triggered, without having products, such as loans. from weather and catastrophic events. to wait for claims to be settled in the Farmers and herders with insurance When one of those events is triggered, traditional way. Insurance will also pay also enjoy improved access to finance, the insured party receives an insurance out if the index is triggered irrespective as banks are more willing to lend to payment according to the pre-defined of the actual loss. those whose assets are insured. payment formula. For example, insur- Index-based insurance reduces moral ance will be paid out in the event of hazard and adverse selection, ensures drought, defined as a result of less than Our Partners Contacts The European Union is the primary donor partner to the GIIF Trust Shadreck Mapfumo Selin Konrat Fund with a focus on the African, Caribbean and Pacific Group Senior Financial Specialist Operations Analyst - GIIF of States (ACP). The governments of Japan and the Netherlands +27 (0)11 731 3223 +90 (0)212 385 3025 SMapfumo@ifc.org SKonrat@ifc.org are providing additional support for further countries. Christina Files http://www.ifc.org/GIIF Knowledge Management Specialist +27 (0)11 731 3000 CFiles@ifc.org