Index insurance is a relatively new but innovative approach to insurance provision that pays out benefits on the basis of a predetermined index (e.g. rainfall level) for loss of assets and investments, primarily working capital, resulting from weather and catastrophic events, without requiring the traditional services of insurance claims assessors. It also allows for the claims settlement processes to be quicker and more objective.

 

Before the start of the insurance period, a statistical index is developed measuring deviations from the normal level of parameters such as rainfall, temperature, earthquake magnitude, wind speed, crop yield and livestock mortality rates.

 

Insurance is important because uninsured losses lock vulnerable populations in a vicious cycle of destitution. Unfortunately agricultural insurance and insurance against catastrophes are either unavailable or prohibitively expensive in many developing countries