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Millions of small farmers to benefit from new type of insurance - study

by Chris Arsenault | @chrisarsenaul | Thomson Reuters Foundation
Thursday, 29 January 2015 14:51 GMT

Index insurance offers small farmers better protection against extreme weather driven by climate change

ROME (Thomson Reuters Foundation) - Governments from Mongolia to Nigeria are creating new forms of insurance to protect the developing world's small farmers, who are suffering especially badly from extreme weather events made worse by global warming, a new study said.

Obstacles like poor infrastructure and lack of financing have been partly overcome in several countries, and insurance is now available to millions of small farmers, said the study released on Wednesday by Columbia University and the research group Climate Change, Agriculture and Food Security (CCAFS).

More farmers are able to obtain coverage than before due to a switch to index insurance from traditional indemnity insurance, where the size of payouts is based on specific losses faced by a client.

The new index model allows farmers to buy insurance so they receive a payout if the amount of rainfall in a given period increases or decreases beyond acceptable levels, or if average crop yields in a certain region drop below an acceptable level.

It was not viable for traditional insurers to assess and cover many small farms with low margins, as it was not worthwhile to investigate claims, the study said.

"This shift could change the lives of millions of smallholder farmers across the globe, who face increasingly erratic weather due to a changing climate," Dan Osgood, a Columbia University professor who co-authored the study, said in a statement.

Mongolia, for example, has adopted an index insurance system for livestock, linking more than 15,000 nomadic herders to commercial insurance and a government disaster safety net.

In India, where more than half the population is employed in agriculture, rainfall variations account for more than 50 percent of the fluctuations in crop yields, the study said.

Weather-based insurance, currently used by more than 12 million farmers, offers a crucial cushion to protect them against financial collapse due to crop failure.

In Nigeria, more than 6 million farmers will be benefiting from one crop insurance plan by the end of this year, said senior agricultural ministry official Débísí Àràbà.

The scheme allows farmers to buy insurance for the equivalent of $2.50 and offers a payout of up to $100 if their crops are destroyed by fires, floods or other disasters.

Government officials need to physically assess damage to crops in order for farmers to receive a payout under the current plan, he said, but the state is trying to move that process onto the internet.

"We want to improve the technology so farmers can take a picture of their (damaged) crops and send it in," Àràbà told the Thomson Reuters Foundation.

"We want to reduce the overhead costs of transactions and create greater private sector involvement so farmers have access to the widest possible sweep of insurance products." (Reporting By Chris Arsenault; Editing by Tim Pearce)

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