80019 Global Index Insurance Facility Expanding Access to Index-Based Insurance in Developing Countries July 2013 Newsletter (Issue #6) IFC, SANASA Promote Economic Inclusion in Sri Lanka through GIIF May 29, 2013 - After three decades of conflict, Sri Lanka has seen a rise in the number of small-scale farmers and small and medium enterprises (SMEs) - a trend that has helped the economy grow and create jobs. To keep the momentum, IFC is partnering with the SANASA Group to ensure that businesses, especially in the north and east, can access needed financing. The SANASA Group is comprised of over half a dozen affiliated companies including the SANASA Federation (with over one million members through its 8,400 savings and credit institutions), SANASA Jin-Yong Cai, IFC CEO, addressing SANASA tea farmers with index insurance. Development Bank and SANASA Insurance. SMEs play a strategic role in the as microfinance and weather index- Jin-Yong Cai met with SANASA clients country’s post-conflict economy. As of based agricultural insurance. With and highlighted the importance of diverse 2011, SMEs - including farmers - accounted assistance from the Global Index Insurance financial products to make it easier for for over 70 percent of employment and Facility, an IFC-World Bank initiative, small businesses and farmers to obtain SANASA Insurance is helping small farmers financing, which in turn will foster growth contributed nearly 26 percent to Sri Lanka’s minimize the impact of crop losses through GDP. However, credit constraints hinder and global integration. flexible and affordable weather-based both small business growth and overall “GIIF’s work in Sri Lanka to expand agricultural insurance products. The first economic growth. weather insurance is critical to ensuring phase has reached over 11,000 paddy and But that is changing. IFC’s advisory tea farmers, helping raise incomes and that small farmers are not vulnerable to and investment teams are working increase food security. adverse weather. SANASA’s commitment with the SANASA Group to improve Recently, on his first visit to Sri Lanka, and passion for helping small businesses is access to basic financial services, such IFC Executive Vice President and CEO inspirational,� Cai said. How Insurance Helps Increase Access to Finance: Interview with David Crush Manager, IFC Access to Finance Advisory Services, Sub-Saharan Africa Q: What contribution has the Global Q: Do you see strong growth potential for Index Insurance Facility (GIIF) made to index-based weather and catastrophic the Africa region since funding index insurance in the Africa region? insurance pilot projects over the past few A: From a development perspective, years in East, Southern and West Africa? one of the key benefits of insurance- A: The GIIF facility has begun to make an based products is that the financial impact in the African region, particularly in the east and southern parts of the compensation goes directly to those who continent. For example, Kilimo Salama, one need it, when they need it. Index-based of our GIIF implementing partners in Kenya insurance products generally provide and Rwanda, reached a major milestone in quicker payouts, without time consuming April 2013 with a total of 100,000 farmers loss adjustment. There is clearly potential insured with index insurance in these two to develop this market further and in agriculture supply chain models that countries. And it’s not just the insurance ways that will provide greater financial are providing farmers with much better itself, it’s the impact of being insured - security and more sustainable incomes to access to markets than previously. It is over 30,000 Kilimo Salama farmers in Kenya have also been able to access smallholder farmers who have traditionally an exciting time in this industry, and the $5.5 million in financing because they been the most vulnerable. Insurance combination of private sector and donor have insurance. products can be built effectively into support is really driving the innovation. GIIF is funded by the European Union, Japan and the Netherlands and jointly implemented by IFC and the World Bank. Global Index Insurance Facility Issue #6 | Page 2 GIIF/World Bank Country Updates The World Bank GIIF Team has been working on increasing levels of awareness, improving technical and commercial capacity, and improving legal and regulatory capacity for index-based insurance in Latin America and the Caribbean, the Pacific and Sub-Saharan Africa. In West Africa, one of the principal recent achievements was the adoption of a new regulation allowing the development of micro-insurance and index insurance in the CIMA zone (covering 14 countries in Francophone West Africa) in April 2012. Index insurance training for farmers and cooperatives in Senegal. LATIN AMERICA AND THE CARIBBEAN Dominican Republic (DR) market-based agricultural insurance to the Argentina The WB GIIF Team conducted a feasibility Ministry of Agriculture and Livestock. Two feasibility study reports for livestock study for macro-level agriculture index- SUB-SAHARAN AFRICA and cotton index-based insurance were based insurance on the Hurricane Benin completed in 2012. The WB GIIF Team Trajectory Index (HTI). The study verified Following on the initial success of index developed a high resolution database that that HTI insurance is possible, and despite insurance in Senegal, an index insurance allows users to easily calculate pure loss a lack of weather data, portfolio yield index pilot in Benin will be implemented with cost rates, technical rates and indicative insurance is feasible for the Federation of support from Planet Guarantee (PG), the commercial premium rates for each Cocoa Growers. GIIF partner for commercial outreach in Insured Unit. Both studies concluded that Haiti West Africa. retail insurance (e.g. individual farmer) is The WB GIIF Team is exploring the not feasible because of substantial basis After final pricing by Swiss Re, sales possibility of financial risk transfer risk. Only macro-level insurance with will commence in June 2013 for a mechanisms to protect the agriculture government subsidies and support is maize index, with pilot target outreach sector against damage caused by tropical recommended. projected at 2,000 farmers for the WB storms, expanding the agriculture credit ground weather index product, and Uruguay market, and making agriculture insurance 5,000 farmers for PG’s satellite-based The WB GIIF Team assessed the available to individual farmers. index product. feasibility for a livestock index-based Jamaica insurance product to cover the whole The WB GIIF Team continues the work Djibouti country, as livestock across the country initiated by the “Market-Based Agriculture The WB GIIF Team has prepared a report is exposed to recurrent droughts. Risk Management in the Caribbean� project. and a roadmap for the implementation of a The study designed a NDVI (Normalized The project is focusing on the development pilot index-based livestock insurance project. Difference Vegetation Index) insurance of weather index-based insurance for the Ethiopia product. coffee sector, and a Caribbean catastrophe The Government of Ethiopia received a The Laboratory for Regional Analysis and risk insurance fund parametric product for $100,000 grant from GIIF in 2012 to review agricultural losses in 2013. Remote Sensing at the University of Buenos the existing regulatory and supervisory Aires’ Faculty of Agronomy established framework for the development of a the databases for both Argentina and PACIFIC weather index insurance market. Micro- Uruguay, and the WB GIIF team designed Papua New Guinea insurance regulation has been completed, software that allows the client to generate The WB GIIF team conducted a pre- and a scoping mission is in preparation to net actuarial commercial premiums for any feasibility study and submitted assess the extent of technical assistance chosen combination of cover. recommendations for the introduction of needed to set up an index insurance market. (continued on pg.4) GIIF/WORLD BANK TEAM Washington Togo Michel Noel, Capital Markets - Non Bank Financial Institutions (FCMNB) Fatou Assah, Program Coordinator/GIIF, FCMNB Peter Wrede, Senior Insurance Specialist, FCMNB Georges Abbey, Consultant Nene Diouf, Portfolio Analyst, FCMNB Thailand Rachel Sberro, Research Analyst, FCMNB Oliver Mahul, Program Manager, FCMNB Global Index Insurance Facility Issue #6 | Page 3 World Bank on the Role of the Public Sector in Supporting Markets for Indexed Agricultural Insurance: Interview with Daniel Clarke Senior Specialist, Disaster Risk Financing and Insurance Program, World Bank Q: What is the role of the public sector largest crop insurance program in the to successfully set up index insurance world with 29 million indexed crop markets in developing countries? insurance policies sold last year (covering A: While the implementation of indexed 22 percent of all farmer households in India). This was made possible through agricultural insurance is typically most efficient long term government commitment which and effectively managed by the private made insurance compulsory for all farmer commercial agricultural sector, public sector loans, substantial government subsidies support is critical in four main areas: 1) quality including financing of insurance data, and data that is available for both public and recent substantial involvement from the private parties; 2) outreach support through private sector. subsidies, public information campaigns, and In Mongolia, while the program has perhaps some elements of government- been nation-wide for only three years, mandated compulsion or nudging; 3) public 10 percent of all livestock farmers Yes, but it’s challenging. In recent years retention of some insurance risk to support now have livestock index insurance. many pilot agricultural insurance schemes the market development of products based The government has played a key role in on new types of data to effectively crowd in have not scaled up. There is increasing developing and sustaining the market reinsurance markets; and 4) technical and evidence that some of the index insurance through investing in robust, insurance- regulatory support and oversight both products offered through recent pilots quality livestock mortality data; paying to rural credit markets and index insurance provide limited client value due to high for the catastrophic layer of risk; and markets. promoting the program through public basis risk, e.g. the risk that the claim Q: Which public-private partnerships awareness campaigns led by government payment will not fully reflect the loss for index insurance would you extension workers. incurred by the policyholder. These two highlight as models? Q: Can index insurance help scale up challenges (outreach and product quality) A: The most successful agriculture agriculture insurance programs for index insurance programs in developing small farmers in developing countries, can be addressed through long-term countries are based on strong public- the majority of whom are still without engagement, innovation and strong private partnerships. India has the second insurance and access to finance? public-private partnerships. GIIF NEWS East Asia-Pacific: GIIF has started its expansion in the East Asia Pacific region, and two pipeline projects in the Philippines and Indonesia are expected to be operational soon. South Asia: A conference was organized in May in Dhaka, Bangladesh, to explore the possibility of launching an index insurance pilot. IFC is now a member of the Microinsurance Network. Founded in 2002, the Microinsurance Network’s mission is to promote the development and delivery of effective insurance services for low-income people by encouraging shared learning, facilitating knowledge generation and dissemination, and providing a multi-stakeholder platform. The Network is based in Luxembourg and consists of 70 institutional members and 15 working and discussion groups. GIIF’s objective is to expand the use of index insurance as a risk management tool in agriculture, food security and disaster risk reduction. According to a recent UN Officer for Disaster Risk Reduction report, natural disasters have cost the global economy $2.5 trillion since 2000 and affected millions of people. Rwanda/MicroEnsure: Local insurer SORAS handing over a check for Rwfs 1.1 million ($1,700) to COAIRWA Cooperative as the result of a 25% payout for weather index insurance. Global Index Insurance Facility Issue #6 | Page 4 GIIF/World Bank Country Updates Kenya pre-feasibility studies in five states of for selected crops and livestock, revised The WB GIIF Team held a stakeholder Nigeria (Kano, Kaduna, Lagos, Enugu and existing regulatory instruments to include workshop with GIIF grantees Syngenta Cross River) for rain-fed maize and rice, micro and agriculture index insurance, Foundation and the International Livestock and funded a study tour and training for a and held three training and awareness Research Institute. The GIIF grantees NAIC representative in India. From a policy workshops to help the local insurance stressed the need to address overly perspective, the WB team has highlighted industry understand the new CIMA book restrictive regulations which are proving to GIIF and AIDP (Agriculture Insurance regulations. An agricultural index insurance be a major constraint to the development Development Project) in various policy pilot is being implemented in 2013 for of micro-insurance and index insurance framework papers (CADP-3 and Weather 8,000-10,000 farmers with collaboration markets. As a result, a legal expert was Disaster Management program). from research institutions (both foreign- contracted by the World Bank to assist the Insurance Regulatory Authority of Rwanda and Mozambique CIRAD and Senegalese-ISRA), local In Rwanda and Mozambique, preparations expertise from the national meteorology Kenya in drafting proposed regulatory and are underway to support the strengthening agency (ANACIM), and representatives of supervisory documents. of the regulatory insurance framework. farmers’ organizations (ASPRODEB). Nigeria Nigerian Agricultural Insurance Corporation Senegal Uganda (NAIC), one of the oldest public agricultural Senegal is one of the leading countries The GIIF WB Team held discussions with insurance companies in West Africa, in West Africa to successfully broker a the Ugandan Insurance Regulatory approached the WB GIIF Team in 2011 public-private partnership with the local Authority (IRA) in 2012. A legal expert is for help in expanding its range of crop insurance industry to support agricultural now assisting the IRA to review existing insurance products and services by insurance, including index insurance. To laws and regulations and to develop a developing weather index-based insurance date, the Government has committed regulatory framework paper to cover both products. The WB GIIF Team has completed funds for a 50 percent premium subsidy micro and index insurance products. EUROPEAN PARLIAMENT HOLDS SYMPOSIUM ON INSURANCE Role of Insurance Companies in the Adaptation to Climate Change, European Parliament (30 May 2013) The EU is considering ways to improve the market for disaster insurance in the EU and to promote insurance as a critical tool of disaster management with a focus on prevention, mitigation and improved data. GIIF was invited to participate in the debate, specifically on the role of insurance companies. Dr Gary Reusche, IFC/AgriInsurance program manager and GIIF technical specialist: Most insurance solutions will be carried out by the private sector, and governments must monitor the markets. Data is critical in order to measure and evaluate risk accurately, and data is not currently available in many countries. Ex-ante catastrophe planning (e.g. before disasters strike) relies on good data which is part of the core business of insurance and re-insurance companies. Insur- ers/re-insurers are thus playing a vital social role in catastrophe mitigation. Crop insurance is a factor that increases credit to food producers. Increased production is linked to global food security - a high priority issue for IFC/EU in the GIIF program. INDEX INSURANCE IN THE media MicroEnsure, Bringing catastrophic index insurance to St. Lucia/Caribbean http://www.microensure.com/news.asp?id=265&start=0 Syngenta/Kilimo Salama: Index Insurance: Managing Risks - Rwanda http://spore.cta.int/images/stories/pdf/SE-164.pdf A syndicated OpEd campaign across Sub-Saharan Africa: Turning the Tide on Rural Poverty, Peer Stein, IFC and Denis Salord, European Union. The OpEd was published in eight countries in Sub-Saharan Africa. See GIIF OpEd Africa About the GIIF Initiative Contacts Launched in 2009, the Global Index Insurance Facility is a multi- Gilles Jacques Galludec Selin Konrat donor trust fund financed by the European Union, Japan and the GIIF Program Manager Associate Operations Analyst Netherlands. GIIF is managed by IFC and jointly implemented with +90 (0)212 385 3046 +90 (0)212 385 3025 the World Bank. www.ifc.org/GIIF GGalludec@ifc.org SKonrat@ifc.org