Basis Risk in Index insurance By: Kollin Rao

Food prices for wheat, maize, corn or soybeans have risen in the last 18 months markedly, mainly as a result of a growing imbalance between supply and demand for agricultural products. Since 2000, prices for food have nearly doubled around the world. The supply side is not keeping up with the increase in demand. Direct investments into agriculture production are still remarkably low. This issue is being addressed at both the national and international level. For example, within the Commonwealth, Ministers of Finance, at their Annual Meeting in October 2008, called on the international community to intensify its support for affected countries and to accelerate both short and longer term investments in increasing agricultural production and productivity.

Food prices for wheat, maize, corn or soybeans have risen in the last 18 months markedly, mainly as a result of a growing imbalance between supply and demand for agricultural products. Since 2000, prices for food have nearly doubled around the world. The supply side is not keeping up with the increase in demand. Direct investments into agriculture production are still remarkably low. This issue is being addressed at both the national and international level. For example, within the Commonwealth, Ministers of Finance, at their Annual Meeting in October 2008, called on the international community to intensify its support for affected countries and to accelerate both short and longer term investments in increasing agricultural production and productivity.

Insurance Sector Vulnerabilities to Climate Change Presentation to the 2005 Meeting of the American Association for the Advancement of Science Environment & Public Policy Track Presented By: Evan Mills, Ph.D. U.S. Department of Energy University of California Lawrence Berkeley National Laboratory Berkeley, California - USA - eetd.lbl.gov/insurance

Losses from climate variability and extreme weather events related to climate have been rising rapidly over the past three decades, and these losses are set to increase even more rapidly with the acceleration of long-term climate change. Efforts to prevent climate change by reducing the emission of greenhouse gasses are underway, of course, but technical, economic and political obstacles mean that we are unlikely to see stable atmospheric concentrations any time soon. In the meantime, more extreme weather can be expected [IPCC (2001)].

This paper examines climate change mitigation and adaptation from an insurance industry perspective, with particular reference to London and the USA. It illustrates how British insurers are increasingly shaping public policy and using new technology to manage the risks from climate change impacts and makes a plea for society to make more use of insurance expertise in future decision making. The industry is a “sleeping giant” much bigger and potentially more powerful than the fossil fuel industry in shaping the future through financial incentives and disincentives. The insurance industry has much to contribute, and increasingly would welcome a greater dialogue with the academic and political community. The paper has a “further reading” section, which includes two recent UN reports which illustrate the need for greater dialogue between experts in the USA and the UK. Hopefully this conference will help to create such a dialogue.

Unlike conventional insurance, which indemnifies policyholders for verifiable production losses arising from multiple perils, index insurance indemnifies policyholders based on the observed value of a specified “index” or some other closely related variable that is highly correlated with losses. Index insurance exhibits lower transaction costs than conventional insurance, potentially making it more affordable to the poor in the developing world. However, it also offers less effective individual risk protection. This article provides a review of recent theoretical and empirical research on index insurance for developing countries and summarizes lessons learned from index insurance projects implemented in the developing world since 2000

The nature of does nothing in itself to stimulate the growing of agricultural crops but it can insure the non-growing of them (Geertz, 1963). The nongrowing and loss of crops due to biophysical and geophysical processes have been interpreted as risks and catastrophes that human being need to anticipate. This paper asks: what were the impacts of natural catastrophes on Indonesian agricultural crops during the last four decades? And what are the options available to mitigate future agriculture loss and safeguard food production in Indonesia? The quantitative analysis is based on two national datasets from Indonesia, namely the Disaster Loss data from Agricultural Statistics produced by the Ministry of Agriculture in 2009 and an online disaster database from the National Disaster Management Office updated in March 2012. This research concludes that Indonesia can achieve better food production by adopting multiloss mitigation scenarios. The chapter further highlights the impact of climate change on Indonesian agriculture, and existing policy instruments concerning disaster risk reduction in agricultural sectors. In addition, it makes policy recommendations for the Indonesian government and the international community regarding alternative solutions towards agricultural resilience.

Impact of Climate Change on Crop Production Alexander J.B.Zehnder

About 65% of the cropped area in India is dependent on rains. Because most of the rains in India are received during the monsoon months, the crop growing seasons are quite short. Any aberrations in the amount of rainfall or in its distribution can adversely impact the crop yields. Yield and price uncertainties often reduce the incomes of the farm households and, consequently, their consumption levels and investments. Many of the farmers in the semi-arid tropics (SAT) of India live close to subsistence level, and shielding them from the weather-induced shocks in agricultural income is vital for their survival. The SAT accounts for 37% of the country’s geographical area as well as population, 46% of the net cultivated area, 59% of the coarse cereals area, 53% of the pulses area and 60% of the oilseeds area. Even 60% of the commercial crops are grown in the SAT. If rainfed agriculture in the SAT is to remain as a means of livelihood, ex-ante risk management is a critical first step to ex-post risk coping.