Weather Index Insurance

Weather Index Insurance

Climate change has been the talk of the day in recent times and it has not spared the agriculture sector. Recently, the weather has become unpredictable and often times its impact is devastating. MicroInsurance has the past years innovated and implemented a number of weather index insurance projects in an effort to combat the impact of climate change in the agriculture sector. In the past 10 years, we have been working with smallholder farmers helping them combat hunger which comes as a result of adverse weather conditions.

In this article, we are going to discuss the basics of weather index insurance.

Weather is unreliable, it affects farming in many ways. Poor harvests and crop damage due to bad weather can lead to less money in the farmers’ pocket, which makes it difficult for them to meet household expenses and loan obligations.  Weather index insurance is a new way that farmers and institutions can lessen the financial impact of bad weather.

  1. What is weather index insurance?

Weather index insurance is a new type of insurance that can pay out when there are crop losses caused by bad weather.  Bad weather can be too little rain, too much rain, very cold days, very hot days, high humidity, strong winds or other weather that may cause losses to crops.   It is not based on the actual damages on a farmer’s field, but rather pays out when specific weather events, such too much rain, are recorded at the nearest weather station. Measuring weather in this way allows the insurance to be affordable, but still, cover crop losses the farmer may experience.  It does NOT cover losses related to: pests, diseases or poor farm management.

  1. How does the weather index insurance work?

Weather events (such as rainfall) are measured throughout the season at the farmer’s nearest weather station or using satellite.   Weather index insurance is designed to cover the specific risks of the farmer.  For example, if there are concerns about drought, weather index insurance covering too little rain can be created.  If there are concerns about flooding or too much rain during certain critical times, weather index insurance can be created that covers too much rain.  The insurance pay-out is calculated using the information in the insurance contract, which is available to the farmer.   The pay-out is made automatically, which means that the farmer doesn’t have to fill out any forms to get money from the insurance company.  The pay-out will be made very soon after the weather event occurs, to make sure any losses can be taken care of quickly.  The worse the weather, the bigger the pay-out.  To get the product a set amount is paid to the insurance company. This is called the “premium”:

Premiums are not returned to the farmer if there is no pay-out. This is to keep the cost of the insurance low, and if bad weather happens, to make a pay-out bigger.

  1. Why should farmers buy weather insurance?

All farmers know that the weather is unpredictable which creates risk for farmers, their sponsors, agribusinesses and banks.  Bad weather can cause crop losses, making it difficult for farmers to meet their financial commitments.   Weather index insurance is a new type of insurance to help farmers recover some of their lost income due to bad weather.

  1. Why Should Financial Institutions (FIs) Facilitate Weather Index Insurance

Financial Institutions (FIs) can hedge their agriculture book from the weather risks.   FIs can reach out to farmer groups and associations that are participating in weather insurance programmes. Weather Index Insurance act as a value added benefit to the agriculture credit facility. It is cost effective as no loss adjusters are required to assess the damage  and easy to implement and monitor from the remote.  The weather Index Insurance is terror made for  FI’s product specifications.


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