Developing Rainfall-Based Index Insurance in Morocco
This paper is part of a larger effort within the Bank to analyse the feasibility of weather-based index insurance markets in developing countries. In this case, the authors assess the feasibility of rainfall-based index insurance to provide effective, low-cost drought insurance for Moroccan farmers and rural dwellers. The main objectives of the study is:
- To assess Morocco's exposure to weather-related risk and the need for weather risk management products;
- To document the functions and experience of private and public institutions currently providing agricultural insurance in the country;
- To simulate the effect of rainfall-based index contracts in reducing the revenue volatility of grain producers in Morocco;
- Examine the costs relative to the insurance coverage provided
Based on the analysis of rainfall and cereal yield data across the country, this study determines that a rainfall index-based insurance product could be feasible in Morocco. The benefits of this program over the traditional insurance scheme are that it:
- Minimises the risk of moral hazard and adverse selection;
- Promotes a streamlined pay-out process.
These features make the programme more attractive to international re-insurers and investors in capital markets. Given the encouraging results of this feasibility analysis, the authors recommend introducing proportional rainfall insurance contracts on a pilot basis in a few select provinces in Morocco.
