Index Insurance Forum

PLENARY SESSION 2: Financial Solutions in Agricultural Risk Management

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MODERATOR: Olivier Mahul (Head, Disaster Risk Financing and Insurance Program, World Bank and Global Facility for Disaster Reduction and Recovery)  

SPEAKERS: Alejandro del Valle (Assistant Professor of Risk Management and Insurance); Luisarturo Catellanos (Vice-President of Technical Modeling, Cat Risk Mexico); Simon Young (CEO, African Risk Capacity – ARC- Insurance Company Ltd); Professor Segor (Principal Secretary, State Department of Livestock, Ministry of Agriculture, Livestock and Fisheries)

Alejandro del Valle spoke on the impact of Fonden in Mexico on economic activity.  Night lights were used as the proxy to economic activity (using satellite images at a 1km sq grids). Main prelim finding was that access to disaster funding increases local economic activity by as much as 2.57% one year after damage from heavy rainfall has occurred. Also that the average benefit cost ratio of Mexico’s disaster fund was 1.3 (measuring against cost of Program of USD 4.9 Billion, 2004 to 2011) – it took about 20 – 25 years to get Fonden fully running.  

Luisarturo Castellanos spoke on the CADENA (Component for the Attention of Natural Disasters program – or Componente para la Atención a Desastres Naturales en el Sector Agropecuario y Pesquero (CADENA), launched in 2003 under the Ministry of Agriculture, Livestock, and Fisheries, SAGARPA): the CADENA program is part of Government of Mexico initiative to target small scale farmers with little or no access to credit/insurance with agri index insurance (majority of premiums are subsidized by federal/state government). Key features is that it is a group crop insurance, issued by public reinsurer Agroasemex and 3 private insurers.  To date 10 million ha is being covered by insurance, which is around 70% of what smallholders are estimated to sow (14 million ha) each year.  Key challenges for weather index insurance has been data variability, missing data in historical records, not enough weather stations, or newer WS without historical data.  Gridded data for the country is being built and tested to address this. 

Professor Segor spoke on the Kenya Livestock Insurance Program and its relevance/importance.   Noted the USD 12.1 billion loss due to droughts (2008 and 2011), happening every 3 to 5 years, with 80% of country considered as arid/semi-arid land.  The GoK will spend up to ksh 300 million Livestock Insurance, with 100% subsidy for the farmers, though in future they will gradually reduce this on cost share basis, and crowd in the private sector.  Key challenge noted will be the sensitization of farmers, and use of technology to cut on transaction costs. 

Simon Young gave an overview of the ARC, a specialized agency of the Africa Union to help Member States improve their capacities to better plan, prepare and respond to extreme weather events and natural disasters.  The ARC Insurance Company Ltd. is the financial affiliate, and a sovereign-level mutual insurance company.  In 2012, 26 countries signed up the treaty and the insurance entity with initial capital from KfW and DFID.  Currently is covers 9 countries for drought, and also hurricane, flood, cyclone risk.  So far 3 payouts have been made in the Sahel region (USD 27 million, out of USD 197 million coverage).  He spoke on the key advantages of the ARC as follows:  there is access at government-level for all ministries, is well capitalized, and promotes access to the market with 18 reinsurers on board – plus it is a “public good” with open access to gridded rainfall data (10km grid from NOAA) which serves as an effective early warning tool. 

Overall comments, conclusions from session:  The reality is that many of these programs will be subsidized for a while (Fonden took 20 – 25 years to really take off), and that it will take long time to build.  Second is that there is a lack of information and data throughout, with a need to focus on building this.  Third is the costs of delivery – these are usually very high, so tech solutions such as mobile money should/will be tested.