Index Insurance Forum

Risk Diversification And Up-Scaling Potential

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The development of sustainable insurance solutions requires the thorough risk assessment, modeling, and layering. Agricultural and climate risks are mainly of a systemic nature, i.e. they affect a large geographic area or large parts of the population simultaneously. If the insured risk is not adequately spread, one catastrophic event can threaten the viability of the whole scheme. To lower covariate risks, the portfolio thus needs to be diversified in terms of crops, type of risks, and different geographical regions.

Since 2010, the ILO's Impact Insurance Facility has been working with Sanasa Insurance Company Ltd. (SICL), to design simple, flexible, and affordable weather index insurance products for paddy farmers. From 2012 the Global Index Insurance Facility (GIIF) of the IFC/World Bank Group has supported SICL for further expansion of WII products for paddy and tea farmers.