The Potential for Scale and Sustainability in Weather Index Insurance for Agriculture and Rural Livelihoods

This paper looks at challenges and opportunities in designing and implementing index insurance products for poor rural smallholders.

Extreme weather events and natural disasters are risks that are inherent in agriculture. Weather index-based insurance helps to manage such covariate risk. The paper identifies eight key principles to help weather index-based insurance reach scale and sustainability by building on the experience of Weather Risk Management Facility, a joint undertaking of the International Fund for Agricultural Development and World Food Programme and the analysis of 37 index insurance programs. These include:

• Create a proposition of real value to the insured, and offer insurance as part of a wider services package;
• Build the capacity and ownership of implementation stakeholders;
• Increase client awareness of index insurance products;
• Graft onto existing, efficient delivery channels, engaging the private sector from the beginning;
• Access international risk transfer markets;
• Improve infrastructure and quality of weather data;
• Promote enabling legal and regulatory frameworks;
• Monitor and evaluate products to promote continuous improvement.

The paper also includes nine case studies on index insurance programs and outlines how donors and governments can support the sector.