Weather Index-Based Insurance: What have we learned so far?

1. 1
Weather Index-Based Insurance
What have we learned so far?
Yusuke Taishi
UNDP Bangkok Regional Hub

2. 2
The promises of index-based insurance
• No moral hazards
• No adverse selection
• Faster payouts
• Lower transactions
• More affordable insurance
• Greater outreach
• Improved protection for vulnerable farmers

3. 3
Experience from the Philippines
• 2013-2016
• Outreach: 2,500 farmers
• Products
• Excess rainfall
• Low and excess
•Premiums
• Php 694 (US$13)/ha for Excess rainfall
• Php 1,390 (US$26)/ha for Low and excess
• Amount of cover: Php 20,000 (US$370)
• 178 out of 2,500 received payouts

4. 4
50 km radius of PAGASA Weather Stations where 30 years+ of rainfall data are
available and from which indices are established.
20 km radius of agromet stations where actual rainfall is observed and compared
against the indices. Only farmers from within these circles are eligible for the product.

5. 5
Issues and lessons

6. 6
Technical issues with indexing ➊
Originally…
VEGETATIVE REPRODUCTIVE MATURITY

7. 7
Technical issues with indexing ➊
DAY 1
EARLY VEGETATIVE STAGE: 27 DAYS
DAY 27
Strike value for
payout: 103 mm
Crop water
requirement: 117 mm

8. 8
Technical issues with indexing ➊
During the project…
Daily water requirements were calculated based on a
physiological analysis of rice varieties

9. 9
Technical issues with payout computation
DAY 1
EARLY VEGETATIVE STAGE: 27 DAYS
DAY 27
Strike value for
payout: 103 mm
Crop water
requirement: 117 mm
Payouts are computed
based on water deficits

10. 10
Technical issues with indexing ➋
Accuracy of indices needs to be empirically verified
and this takes time and resources
• Basis risks (pests, diseases, floods, etc)
• Variation of rainfall within 20km-radius of a rain gauge
• Data/assumptions used for indexing may not reflect the
local conditions

11. 11
Technical issues with indexing ➋
Verification of accuracy and continuous
improvements of indices are important because…
Farmers’ trust in insurance can
erode quickly

12. 12
Lessons for scaling, sustainability and impact
Political
economy
Food
security
Subsidy
policy
• “Right” level of subsidy tends
to become more politically-
driven than technically- or
economically-driven
• Crowding out effects of
subsidy and discouragement
of product design need to be
recognized

13. 13
Lessons for scaling, sustainability and impact
Weaknesses
of weather
index
insurance
Conventional
insurance
• Only one climate risk can be covered
• Only weather risks that show high
correlation with yields can be covered
 Perennial crops are harder to insure
Use of
technology
• Covers multiple risks
• More intuitive
• Making conventional insurance more
attractive for insurers
• Remote sensing technology
Cost-benefit
of other
interventions
• Irrigation vs subsidized insurance

14. 14
Lessons for scaling, sustainability and impact
Poverty
reduction
• Poverty reduction impact is generally
not tracked
• If insurance is bundled with other
financial services, does insurance
make farmers better borrowers?
• Often, payouts cover only production
inputs, not income from full harvests
Bundling
with
financial
services
Amount of
payouts

15. 15
New work in Burkina Faso
• Starting in 2019
• Bundling with financial products
• Resilient agricultural practices to address basis
risks

16. 16
Thank you
yusuke.taishi@undp.org
Twitter: @yusuketaishi