Risk management in rural areas: IFAD to issue a technical guide for weather index-based insurance

Rome, 7 November 2011 – The International Fund for Agricultural Development (IFAD) and the World Food Programme (WFP) will release a technical guide titled ‘Weather Index-based Insurance in Agricultural Development: A Technical Guide for practitioners to help manage weather risks.

“Rural poor people in developing countries are vulnerable to a range of risks and constraints that impede their socio-economic development” said Kevin Cleaver, IFAD’s Associate Vice President. “Weather risk, in particular, is pervasive in agriculture. “This technical guide discusses weather index-based insurance, a class of insurance products that can allow weather-related risk to be insured in developing countries where traditional agricultural insurance may not always be feasible” he added.

Weather index-based insuranceresponds to an objective parameter, such as rainfall or temperature, at a defined weather station during an agreed period of time. The parameters of the insurance contract are set to correlate as closely as possible with the damages suffered by the farmer. All policyholders within the same area receive payouts based on rainfall measurements at the weather station close to their farms, eliminating the need for expensive, time-consuming loss assessments in the field.

IFAD has been working on index insurance as part of its commitment to reduce the vulnerabilities of poor rural smallholders and open their access to a range of financial services with a view to improving their livelihoods. Launched in 2008 with the support of the Bill and Melinda Gates Foundation, IFAD joined forces with the WFP to launch the Weather Risk Management Facility (WRMF).

The technical guide comes just prior to the 7th International Microinsurance Conference to be held  in Rio de Janeiro, Brazil 8- 10 November. Hosted by the Munich Re Foundation and the Microinsurance Network, conference is critically important for  international experts from insurance and reinsurance companies, international organisations, NGOs, development-aid agencies, academics, policymakers, regulators and supervisors.  Over 400 experts from more than 50 countries aim to exchange experiences and discuss the challenges and opportunities of microinsurance.

This year, amongst other issues, the conference participants will discuss how microinsurance can be more effectively delivered to low-income households, and how public-private-partnerships can be mobilized to deliver effective microinsurance products against weather shocks such as drought.

The guide focuses on WII  and translates the findings and experience of the WRMF to date into practical decision-making steps for donors and practitioners. It covers each phase of the WII project design and management process. The guide also shows how WII operates best as part of an integrated approach to risk management, when constraints such as lack of access to finance, improved seed, inputs and markets can be simultaneously addressed.

 “While not a panacea for poverty, nor the sole solution for at-risk producers, WII shows great promise as a tool to reduce the severe effects of weather related shocks on people who depend on agricultural production for their livelihoods” said Cleaver.

Notes to editors

Nearly 1.4 billion people live on less than US$1.25 a day. Seventy per cent live in rural areas where they depend on agriculture, but where they are also at risk from recurrent natural disasters such as drought and flooding. Natural disasters have a devastating impact on the food security and overall social and economic development of poor rural households.

Unless well managed, weather risks in agriculture slow development and hinder poverty reduction, ultimately resulting in humanitarian crises. Poor farmers have few options for coping with significant losses, and in order to reduce their exposure to risk, they often forgo opportunities to increase their productivity. When a crisis does strike, farmers often respond by withdrawing their children from school, selling productive assets or migrating. Extreme weather shocks can make rural populations more vulnerable to increasing food prices and decreasing job opportunities – in addition to losing their own agricultural production.

Press release No.: IFAD/79/2011

The International Fund for Agricultural Development (IFAD) works with poor rural people to enable them to grow and sell more food, increase their incomes and determine the direction of their own lives. Since 1978, IFAD has invested about US$13.2 billion in grants and low-interest loans to developing countries through projects empowering about 400 million people to break out of poverty, thereby helping to create vibrant rural communities. IFAD is an international financial institution and a specialized UN agency based in Rome – the United Nation’s food and agricultural hub. It is a unique partnership of 167 members from the Organization of the Petroleum Exporting Countries (OPEC), other developing countries and the Organisation for Economic Co-operation and Development (OECD).