GlobalAgRisk is committed to improving the rural poor's access to financial services and other markets with innovative approaches to transferring natural disaster risk.
GlobalAgRisk Projects
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Peru (top)
From 2004 to 2006, GlobalAgRisk performed a feasibility assessment and preliminary product development work for an insurance product that would reduce constraints to agricultural lending in the microfinance sector with support from DAI, USAID, and the Peruvian NGO, COPEME. That early work identified the consequences of El Niño as a major constraint to lending in northern Peru. El Niño is a recurring threat in Peru that can bring catastrophic rainfall and flooding along its northern coast. Severe events result in major destruction and disruption to the regional economy. That assessment led to a focus on the region of Piura and the design of an innovative index insurance product that utilizes measures of Pacific sea surface temperatures obtained from NOAA as the basis of payment. These values are highly predictive and correlated with the extreme El Niño events and their consequences in Piura. The unique aspect of this index is that the sea surface temperatures can signal a severe El Niño months in advance of its impact on land, enabling an insurance payment to be made several months before the onset of catastrophic weather. The advance payment can then be used for risk mitigation and adaptation strategies to reduce losses and disruptions from the impending disaster. The original product was designed to transfer the portfolio risks of rural lenders and thereby improve access to credit for smallholder farmers. However, the potential benefits of El Niño Index Insurance extend to many sectors due to the widespread damage and loss that can occur.
Indonesia (top)
GlobalAgRisk, with support from the Ford Foundation, is undertaking an effort to develop and introduce index-based insurance for earthquake risk in Indonesia. Indonesia ranks 11th for its economic exposure to earthquakes, estimated at USD 79 billion, and ranks third out of 153 countries for the number of people present in earthquake hazard zones.
Severe earthquakes, like many natural disasters, are a correlated risk that threatens the livelihoods and future economic well-being of many people over a wide area. In late 2009, the 7.6 and 6.8 earthquakes in West Sumatra alone resulted in 1,300 lives lost and 1,214 persons severely injured. More than 250,000 households were affected by a total or partial loss of their homes and livelihoods.
An important advantage of an index-based approach is that payments can be made rapidly, providing the financial resources needed to respond to such a catastrophic event.
The project goal is to develop an efficient and affordable, market-based index insurance product for earthquake risk that would protect the asset accumulation and access to financial services for Indonesia’s working poor. GlobalAgRisk is pursuing two market development paths. The first pursues a risk aggregator strategy to develop a meso-level product that targets microfinance providers and SMEs that serve the poor. The second is to develop a household-level resiliency strategy, building upon the foundation of the initial product to adapt and bundle an earthquake index contract with existing microfinance products targeted directly to low-income consumers.
Vietnam (top)
GlobalAgRisk has undertaken three significant activities in Vietnam beginning with the development of an index insurance product against flood in the Mekong Delta. The insurance is indexed on river levels and is designed for the state agricultural bank to cover business interruption losses that result when client farmers seek loan restructuring following an early and severe arrival of the annual flood that disrupts and prevents their rice harvest. The fully priced and reinsured product was twice offered by a domestic reinsurer but was not purchased.
Next, a series of agricultural insurance education workshops were held for audiences in academia, government policy analyst and research units, and finance and agriculture ministries. The workshops culminated in the publication of a four-part handbook, in Vietnamese and English, that addresses the challenges of developing agricultural insurance markets. The handbooks use a structured risk assessment to guide policy initiative, illustrate project applications of the risk assessment and product development, and provide a policy vision for developing agricultural insurance in Vietnam. (An English version of the handbook can be obtained here).
Finally, GlobalAgRisk has designed and developed drought insurance for consequential cost and loss for coffee producers in Dak Lak Province. The insurance is indexed on rainfall at selected weather stations and indemnifies in the event of a delay in the normal start of the monsoon season. Drought during this period requires smallholder coffee producers to undertake costly additional irrigation to save their coffee crop and plants. Even with irrigation, reductions in coffee yield and quality are experienced, depending on the severity of the drought. The product, modified from field experience in early 2010, will be offered by a domestic insurance company holding an appropriate reinsurance contract on a fully priced policy for the 2011 drought exposure.
Mongolia (top)
The idea of using mortality index insurance to insure against livestock losses from natural disasters was first proposed by GlobalAgRisk in 2001, as part of a World Bank project. At that time, Mongolia had recently experienced massive livestock losses resulting from severe winter conditions that left many herders in a desperate situation. GlobalAgRisk designed the Index-based Livestock Insurance (IBLI), basing the insurance payments on estimates of aggregate livestock mortality rates by species at the county level, as calculated by the Mongolian National Statistics Office. The IBLI policy couples a commercial product for moderate to large livestock losses and a social safety net for catastrophic losses through a public-private partnership between private sector insurance companies and the government of Mongolia. Unique financing arrangements pool the risk among participating insurers and ensure that sustainable and secure financing is in place to make all insurance payments in the event of extreme livestock losses. The IBLI design received the World Bank 2006 Golden Plough Award for Innovation as the world’s first index-based livestock insurance program.
In 2005, the IBLI pilot was instituted in three provinces, which began the process of transitioning IBLI to a self-sustaining, nationwide, program. In 2010, nearly 7,000 herder households in nine provinces purchased the insurance. In 2010, IBLI will be offered throughout the entire country. The integrity of the IBLI program has been tested by subsequent years of severe livestock losses. However, insured herders received the full indemnities due and the insurance companies have remained committed to the program. International reinsurance was obtained in 2010. GlobalAgRisk continues as the lead consulting firm to the government of Mongolia for the implementation and expansion of the IBLI pilot program.
India (top)
Since 2003, GlobalAgRisk has been advising both public and private sector insurance companies in developing new weather index insurance products in India, which has become the largest market in the world for weather index insurance. GlobalAgRisk was an early advisor to the World Bank team that was integral in creating the first weather index insurance product in India. GlobalAgRisk has also advised the government agricultural insurer, the world’s largest provider of weather index insurance.
Mexico (top)
As part of a project with the InterAmerican Development Bank, GlobalAgRisk designed a prototype index product that would pay water user associations when inflows of water to the Rio Mayo Reservoir fall below normal. The irrigation insurance product would be likely to facilitate water markets. This new approach of blending financial risk transfer solutions with capital investments could add considerable efficiency to irrigation projects around the globe.
Mali (top)
Malian agricultural producers and microfinance lenders are exposed to the risk of extreme drought. When lenders loan to large numbers of farmers, the highly correlated losses from drought events will create significant default risk. For microfinance institutions that serve agriculture, a capital rationing problem has emerged because donors are reluctant to increase their capital exposure to this nondiversifiable risk. Small farmers remain vulnerable to the correlated event and are restricted in the amount of working and investment capital they are able to obtain.
In 2008 and 2009, GlobalAgRisk, with support from Save the Children and the United States Agency for International Development, performed a prefeasibility analysis focused primarily in the Sikasso region, south of the capital, Bamako. The assessment presents the basic conditions necessary to support development of a market for index-based insurance products that could allow either farmers or lenders to transfer highly correlated drought risk and investigates the opportunities and constraints of this type of market development in the Malian context.
Ethiopia (top)
In 2004, GlobalAgRisk examined the potential for developing rainfall index insurance to hedge against drought and famine risk as part of a World Bank project. The analysis and conceptual recommendations from this study have motivated new efforts by the World Bank and the World Food Programme to introduce index insurance pilots for drought risk and food insecurity. The World Food Programme is now implementing this idea to provide financial assistance for drought-induced famine in Ethiopia.
Guatemala (top)
Jerry Skees was a presenter at an international conference on agricultural insurance in Central America held in Antigua, Guatemala in May, 2005. The conference brought together representatives from both the public and private sectors to discuss innovations and challenges to agricultural insurance.
Morocco (top)
As part of a World Bank project in 2000, Jerry Skees conducted a feasibility study on rainfall index insurance to hedge drought risk for cereal producers in Morocco .
Nicaragua (top)
In 1998, Jerry Skees was part of a World Bank team investigating opportunities for index insurance for agriculture in Nicaragua. Peter Hazell and Jerry Skees provided the first feasibility study in the spring of 1998. Subsequently, Skees and Mario Miranda examined the issue in more detail and made specific recommendations about rainfall insurance in the major cereal production area of northwest Nicaragua, where the leading risk to cereal production is insufficient or excess rainfall. Skees and Miranda suggested that rainfall index insurance contracts could be introduced and sold to individual farmers to hedge against the risk of both drought and excess rain. At that time the government of Nicaragua did not pursue pilot development. Recently however, renewed interest from the government has led the World Bank to examine new opportunities for the development of index insurance for certain crops.
Romania (top)
GlobalAgRisk performed a feasibility study on opportunities for using area-yield and rainfall index insurance for financing catastrophic yield risk for Romanian farmers as part of a USAID project in 2001–2002.
Turkey (top)
In 2002, GlobalAgRisk was contracted by the World Bank to research the potential for agricultural insurance in Turkey. The objective of this project was to meet with stakeholders in government and the agricultural and private sectors to identify risk management needs and constraints to providing an agricultural insurance program, and to consider the feasibility of index insurance against weather risks for Turkish farmers. The findings and recommendations from this analysis were presented at a stakeholder conference and helped to shape the scope of work for several follow-up projects.
Ukraine (top)
Under a 2002 World Bank project, GlobalAgRisk conducted a feasibility analysis of crop risks in Ukraine. The project report focuses on the opportunity to introduce index-based insurance, in particular, weather-based indexes, and the detailed requirements for pursuing the alternative approaches that are presented for agricultural insurance in Ukraine.
United States (top)
U.S. Government
Federal Crop Insurance Program (FCIP)—GlobalAgRisk has been involved in multiple projects and reviews as requested by the Risk Management Agency of the U.S. Department of Agriculture examining issues related to the performance of the FCIP. Skees and others designed an area-yield index insurance product, the Group Risk Plan (GRP), now offered by the Federal Crop Insurance Corporation.
Private Sector Projects
- Conceptual design of an index insurance project to hedge against the environmental risk associated with manure storage systems
- Review and analysis of proposed crop insurance products
- Feasibility analyses on the use of weather markets for agricultural insurance in the United States