Drought insurance scheme looks to expand

NAIROBI – The world’s first weather-insurance policy to help poor African farmers avoid crippling losses inflicted by drought has proven so successful that the United Nations has said the scheme would be expanded.

Weather insurance is traditionally reserved for farmers in rich countries, enabling them to offset some of the losses that can occur from extreme weather events such as droughts, flood and hail. The pilot scheme, launched in Ethiopia in March 2006, provided insurance for crop failure and loss of livestock if local rainfall levels this year were significantly below historical average.The policy, purchased from the reinsurance giant Axa Re by the UN’s World Food Programme (WFP) with the help of donations from the Ethiopian government and the US, did not have to pay out at the October 31 deadline as this year’s rainfall did not dip below that threshold.If it had, the WFP would have been awarded US$7 million to administer relief in the form of food, services and cash to help 62 000 households in about a dozen affected areas.A severe drought, according to their calculations, would have cost the farmers US$55 million.”The key benefit of this type of insurance-based emergency funding is that it allows for objective payouts and timely interventions,” WFP said, in a presentation on the sidelines of the November 6-17 UN climate conference on Tuesday.Historical records show an 80 per cent correlation between drought and food aid campaigns between 1994 and 2004.And families that become destitute can take around 10 years to recover the loss.The WFP said the insurance scheme was an innovative way of harnessing market mechanisms to soften the blow from weather-related disasters in poor countries.The initiative will now be stepped up to a second phase in Ethiopia, and the World Bank is working on a separate insurance scheme in which local farmers can participate.The UN Environment Programme cautioned, however, that in order to replicate the pilot scheme across Africa, “urgent attention” needed to be paid to developing the continent’s meteorological stations.Reliable weather data was essential for encouraging insurance companies to cover African countries, it said.Nampa-AFPThe pilot scheme, launched in Ethiopia in March 2006, provided insurance for crop failure and loss of livestock if local rainfall levels this year were significantly below historical average.The policy, purchased from the reinsurance giant Axa Re by the UN’s World Food Programme (WFP) with the help of donations from the Ethiopian government and the US, did not have to pay out at the October 31 deadline as this year’s rainfall did not dip below that threshold.If it had, the WFP would have been awarded US$7 million to administer relief in the form of food, services and cash to help 62 000 households in about a dozen affected areas.A severe drought, according to their calculations, would have cost the farmers US$55 million.”The key benefit of this type of insurance-based emergency funding is that it allows for objective payouts and timely interventions,” WFP said, in a presentation on the sidelines of the November 6-17 UN climate conference on Tuesday.Historical records show an 80 per cent correlation between drought and food aid campaigns between 1994 and 2004.And families that become destitute can take around 10 years to recover the loss.The WFP said the insurance scheme was an innovative way of harnessing market mechanisms to soften the blow from weather-related disasters in poor countries.The initiative will now be stepped up to a second phase in Ethiopia, and the World Bank is working on a separate insurance scheme in which local farmers can participate.The UN Environment Programme cautioned, however, that in order to replicate the pilot scheme across Africa, “urgent attention” needed to be paid to developing the continent’s meteorological stations.Reliable weather data was essential for encouraging insurance companies to cover African countries, it said.Nampa-AFP