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Global Index Insurance Facility Newsletter
November 2014

Parametric Insurance: A hopeful vision coming to life

Despite representing only a small portion of the total Property & Casualty market, parametric insurance has evolved rapidly in the last decade. This relatively new approach to insurance is index-based. At AXA, we believe that parametric insurance will continue to flourish in the future.

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Blog Post

Inaugural Climate Risk Forum 2014 raises key ideas for Index Insurance 

After working for nearly 10 years to use index insurance to try to help farmers in developing countries manage climate risk, I’ve come to realize that we need to face some tough questions.  

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GIIF launches Community of Index Insurance Practitioners 

Index insurance has been in operation for almost 10 years in some countries but it continues to throw up new challenges and new questions every year.  At the same time, there are new lessons being learned and several thousands of new farmers being enrolled in index insurance programs worldwide. 

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What's New

  • The GIIF team recently provided technical training to SANASA (GIIF’s implementing partner in Sri Lanka) to further develop the company’s technical capacity, particularly in the area of product design and product pricing. More than 10 product specialists from SANASA attended the 3-day session during which they received practical training on product modelling and product verification.
  • The Agriculture and Climate Risk Enterprise (ACRE), earlier known as Kilimo Salama, hosted its official launch event in Nairobi, Kenya, on Nov 20. ACRE is a key implementing partner of GIIF in Sub-Saharan Africa. 


  • International Microinsurance Conference 
    Date: Nov 11-13, 2014
    Location: Mexico City, Mexico
    Description: The 10th edition of the International Microinsurance Conference took place in Mexico City. Around 500 participants and experts attended the event to discuss the challenges around microinsurance. Participants included representatives of insurance and reinsurance companies, international organisations, non-government organizations and development-aid agencies among others.


  • Agricultural Insurance Conference: How can insurance contribute to food security?
    Date: Nov 26-28, 2014
    Location: Berlin, Germany
    Description: The Conference, hosted by BMZ and co-sponsored by GIIF, will focus on how agricultural insurance and food security are linked and how this link is relevant for future development efforts. It will sharpen the understanding under what circumstances and how agricultural insurance can best contribute to food security and provides a platform to share experiences.
Parametric Insurance (Story continued)

Despite representing only a small portion of the total Property & Casualty market, parametric insurance has evolved rapidly in the last decade. This relatively new approach to insurance is index-based. For instance, in some geographies, claims could be paid out based on actual meteorological conditions measured by weather stations or satellites. At AXA, we believe that parametric insurance will continue to flourish in the future.
It Knows No Borders
Originally, parametric insurance was limited to developing countries as it was considered the most cost-effective insurance model. However, technological advancements have led it to become relevant and effective in countries throughout the globe, slowly but surely making it a credible insurance option for losses previously considered non-insurable. Continuous technological progress in weather information indicators, most notably the upsurge of “Big Data” through weather stations and satellite imagery is making data much more specific, abundant, and ubiquitous. Satellite imagery provides information on a number of key indicators including climate parameters, ocean parameters, and land parameters, allowing for increasingly limitless applications. One telling example is the use of vegetation data based on evapotranspiration and the absorption of sun rays by plants as a proxy for proper plant development.
At AXA, we are convinced of the importance and relevance of parametric insurance for all types of industries, from retail to energy, and many more in between. Three out of four companies are sensitive to the weather, meaning their performance is impacted by such fluctuations. Weather variances can cause drastic drops in demand or substantial increases in costs, directly impacting companies’ bottom lines. Although no one denies the impact of natural disasters, many overlook the not-so-severe: unusually heavy rainfall in the spring, exceptionally warm weather in the winter, amongst others. It is a proven fact that these weather anomalies have become more and more common, and that they are affecting different industries on all levels throughout the world. 
It Takes Two to Tango
We see a promising future for parametric insurance in developing countries but also beyond as a solution to protect the vulnerable from unpredictable weather patterns destroying their assets. Accordingly, in emerging markets, our parametric insurance team is focusing on agriculture and making it a strategic priority to work hand-in-hand with international institutions to provide index-based covers to the risk-prone. As a complement to the proficient micro-insurance programs already in place in emerging markets, we aim to tackle the issue at the “meso-level” and provide tailor-made solutions. Using this “meso-level” approach means that we do not need to look at clients’ personal circumstances to price the risk, but rather cover an organization in charge of redistributing payouts to farmers (a bank, a farmer’s co-op, a government, etc). In this way, we are able to reduce distribution cost curves by leveraging existing networks. 
Our commitment is to keep investing in and exploring the newest weather and other data sources, including vegetation, air quality, and wave height, and to keep searching for the most innovative applications of parametric insurance. In January 2014, AXA opened its “Data Innovation Lab”, a research and expertise center that bolsters technological opportunities and develops capabilities for processing “Big Data,” which we believe to be the future of parametric insurance. As well, our presence and growing experience in many countries in Africa and Latin America is strongly contributing to the progress we are making with parametric insurance, and our partnerships with international institutions, local insurers, farmer co-ops, and governments is what is going to make a real impact. Recently, AXA partnered with the private investment arm of the World Bank Group to boost insurance coverage and capacity and improve safety in emerging markets - one of the most extensive public-private ventures of its kind.
Here to stay
As it is based on natural occurrences beyond human control, parametric insurance is a way of avoiding problems linked to moral hazard and adverse selection which in turn greatly decreases the cost of insurance. The applications of parametric insurance are manifold as it is crucial to industries beyond agriculture, from tourism to construction, and even health. We feel the best solution will be to join forces to further ramp up parametric insurance worldwide as it is vital and a key answer to tackling the many challenges that are and will continue to emerge with climate change.
- Tanguy Touffut
  Head of Parametric Insurance - AXA Corporate Solutions 

Climate Risk Forum 2014 (Story continued)

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After working for nearly 10 years to use index insurance to try to help farmers in developing countries manage climate risk, I’ve come to realize that we need to face some tough questions. We have seen some projects that have scaled fast, have been really popular with farmers and have led to positive impacts on the lives of farmers.  In some cases, research has shown that as a result of the insurance, farmers are better off over time. They accumulate more wealth and more savings, and women shift from sharecropping to working their own land.  Farmer by farmer, the numbers add up to a successful and sustainable business model. For individual farmers, returns from premiums for this insurance look great in comparison with investment opportunities on Wall Street.
The problem is that these successes are rare, with a large number of index insurance projects not really having much to show.  And although some projects have grown from a few hundred to tens or hundreds of thousands of farmers in just a few years, there are still not enough farmers covered to make the profits seen at the individual farmer level add up to support the growth of index insurance businesses without government or donor support. 
The challenge we face today is how to scale from tens or hundreds of thousands of farmers to many millions. We need to do this not only so that the index insurance business can survive on its own, but also to be able to reach all the farmers who critically need protection. In theory, the technology and resources required to make this happen already exist, as does the interest. But how do we do it effectively and responsibly?
This is the question we set out to answer at the First Annual Climate Risk Forum panel, held during Climate Week NYC in September at Barnard College. The panel, hosted by the International Research Institute for Climate and Society (IRI) and the World Bank Group’s (WBG) Global Index Insurance Facility (GIIF), brought together researchers and experts from the private sector, large international organizations, and nonprofits.
The panel participants were from organizations that have witnessed the successes and failures of index insurance from very different perspectives: the World Food Program (WFP), AXA America Corporate Solutions, Swiss Re, Oxfam America, the Consultative Group on International Agricultural Research (CGIAR), WBG GIIF and IRI.
There was a lot of doubt among the panel that index insurance by itself could effectively reduce risks. Instead, Gilles Galludec, Program Manager at GIIF, opened the floor of the conference by pointing out that building index insurance into a broader risk management package is key.  Oxfam America’s Sophia Belay discussed concerns that product design might be misguided or farmers might not understand what they were buying, and highlighted the importance of participatory approaches to design. From a reinsurance company’s perspective, Swiss Re’s Paula Pagniez shared her optimism on opening new markets that offer cost-efficient products to continue reaching farmers in need in a faster way.
The panelists emphasized the synergies index insurance brings when bundled with other tools.  For example, when connected to credit, it offers a guarantee to financial institutions that high-risk smallholder farmers will pay back their loans, and enables these remote populations to make critical agricultural investments for the first time, allowing increased production. Jon Hellin, from CGIAR in Mexico, described how work in Sub-Saharian Africa to develop drought-tolerant varieties of maize is being made affordable to smallholder farmers thanks to an option to purchase insurance and credit together.
We also thoroughly discussed the significance of multi-stakeholder collaboration as a way to overcome together the remaining challenges. By working hand in hand with nonprofits, financial institutions, insurance companies, local officials and other partners, we are already improving the products, developing new markets and scaling up successful pilot projects.
It was clear that projects can easily fail if the insurance is not built to explicitly complement the agricultural choices and other financial tools that farmers use.  For insurance products to be successful, the insurance must be designed to complete the farmer’s toolbox, covering the risks that the other tools cannot fix, always in a way that allows the farmer to make more food more safely. They can fail if they aren’t built upon solid science. They can also fail if the different stakeholders don’t have a shared understanding of the targeted risks, don’t communicate those risks to the client base, and don’t share ownership in the products. When scaling is attempted without remembering these points, things will go badly, and the project may not make it past the pilot.
The panel discussion made it clear that we have a long way to go, with numerous obstacles to overcome, but also evident was that huge potential exists.  We have to remember not to sacrifice those aspects that make a project valuable when we attempt to scale.  

- Dan Osgood
 Lead Scientist, International Research Institute for Climate and Society

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GIIF launches CIIP (Story continued)

Index insurance has been in operation for almost 10 years in some countries but it continues to throw up new challenges and new questions every year.  At the same time, there are new lessons being learned and several thousands of new farmers being enrolled in index insurance programs worldwide.
For its part, the World Bank Group’s Global Index Insurance Facility (GIIF) has been operating for the past six years, during which it has worked with a wide range of partners and industry stakeholders, both from the private sector and the public sector. These partners include the leading lights in policy, research, product development and distribution, credit institutions, insurers and reinsurers as well as governments and regulators. The gains made over the past six years through these partnerships means that GIIF is now uniquely positioned to leverage the combined knowledge and expertise of this diverse universe of stakeholders while facilitating key discussions and research to take the index insurance industry to its next stage of evolution.
In this context, GIIF is launching its Community of Index Insurance Practitioners (CIIP) later this month in Berlin. The CIIP is a first-of-its-kind initiative aimed at exchanging knowledge and best practices from across the world on a single platform as well as discussing solutions to challenges that hinder the growth of index insurance. Through the CIIP, the GIIF intends to formally consolidate its already strong community of index insurance practitioners, grantees and partners and complement its ongoing programs in Sub-Saharan Africa, Asia-Pacific and Latin America and Carribean.
The CIIP will be led by GIIF with the International Labor Organization’s Impact Insurance Facility acting as the implementing partner. Focusing on both public and private sectors, the community will seek to provide its members with a range of knowledge and decision-making tools that are currently scarce and inadequate. In addition, the CIIP will look to stimulate peer exchange and promote lessons learned from key innovators and thought leaders. Through the CIIP, the GIIF expects to facilitate the adoption of best operating practices and move the index insurance industry towards greater value and viability.

Our Donors

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GIIF is funded by the European Union, Japan and the Netherlands.

The EU is the primary donor partner to the GIIF Trust Fund with a focus on the African, Caribbean and Pacific Group of States (ACP). The governments of Japan and the Netherlands are providing additional support to different regions/countries where IFC operates.
The Global Index Insurance Facility (GIIF) is a multi-donor trust fund supporting the development and growth of local markets for weather and disaster index-based insurance in developing countries, primarily Sub-Saharan Africa, Latin America and the Caribbean and Asia Pacific.
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