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A New Risk Sharing Facility to Lower Premiums for Africa's Farmers

Photo Credit: World Bank

WASHINGTON, February 14, 2017  (Press Release) - The World Bank Group’s Global Index Insurance Facility (GIIF) and African Reinsurance Corporation (Africa Re) have entered into an agreement to carry out a risk-sharing facility, in form of an experience account, to decrease premium levels for insured farmers and encourage local companies to create affordable insurance products.
 
“Agriculture provides up to 60 percent of all jobs on the continent, but African farmers need greater access to insurance mechanisms to develop resilience to external shocks and protect their livelihoods,” said Makhtar Diop, World Bank Vice President for Africa.
 
The project is expected to serve as a model to further incentivize other local insurers and regional reinsurers to enter into similar risk-sharing agreements. This will ensure the continuation and expansion of index insurance as a risk management tool that will enable smallholder farmers to build resilience against the impact of climate change.
 
“It is the poor and vulnerable who are the most affected by climate change and natural disasters, and insurance is a critical tool to help protect their livelihoods. The large and complex nature of climate change requires us to work closely with our partners, such as Africa Re, to provide access to finance to those communities that need it the most,” said Alejandro Alvarez de la Campa, Practice Manager, Finance and Markets Global Practice, the World Bank Group.
 
“We are excited about the prospect of this innovative solution to give more confidence to African insurers who wish to underwrite the agriculture class of business. It would enhance the development of agriculture and reach out to farmers, who represent over 60 percent of the labor force in sub-Saharan Africa, within the next decade,” said Africa Re General Managing Director and CEO Corneille Karekezi.
 
Under the project, the facility will reimburse the insurers who experience more than a 75 percent annual loss ratio, thereby decreasing the cost borne by primary insurers. As a result, insured farmers will benefit from lower premium prices and receive payouts faster because of a pre-agreed pricing rule which allows local insurance companies to process claims faster.
 
With their loss ratios kept at 75 percent, local insurers and reinsurers will be encouraged to invest in their capacity building and expand their agriculture insurance books. The more people with the right technical skills and regional experience, the greater the number of innovative products will be available to ensure access to finance to African farmers.


See also: World Bank & Africa Re to Cap Weather Index Insurance Loss Ratios (Artemis)
Index Insurance:
Helping Women Farmers around the World


Photo Credit: World Bank

To celebrate International Women's Day (March 7) and Women's History Month, GIIF wrote a feature story for the World Bank Group to highlight the significant changes index insurance has made in the lives of female farmers. 
  • In Sri Lanka, financial education helps women farmers make sound financial decisions.
  • Index insurance empowers women in Mali.  Read more in the Result Stories from Mali.
  • Index insurance helps women protect their household and eradicates poverty risks. Read Jacinta's story in the following In Focus section.

In Focus: The Insurance Works!
A story told by Jacinta Mutuse

 

Photo: ACRE Afirca


ACRE Africa, a GIIF partner in East Africa, is a microinsurance product designer that helps foster equity, fairness, and innovation in the agricultural sector. As farmers in the region experience changing weather conditions, with delayed rain and more frequent incidents of drought, ACRE Africa engages stakeholders along the agricultural value chain, and advises insurers on the development and distribution of low-cost insurance to protect smallholders’ investments.

The following story is told by one of the beneficiaries of ACRE Africa. Jacinta
Mutuse is a 35-year old farmer, and the mother of a farmer. She and her son live and work in Makueni, Kenya.

The Insurance Works!” A story told by Jacinta
Mutuse

“When the money came through on my phone via M-Pesa[1], I was sure it was a mistake. I was sure that someone had erroneously sent me money. So I waited for the sender to call me and demand that I return it,” says JacintaMutuse, a farmer from Wote, Makueni County.

Jacinta had just received about KES900 (US$9) through the Replanting Guarantee (RPG). The RPG covers the risk of poor rainfall that necessitates the replanting of crops. ACRE Africa monitors the weather at each farmer’s location. An insurance payment is triggered if the weather index indicates the occurrence of adverse weather conditions during the germination phase.

That is how Jacinta received her automatic payout. About a month earlier, she had purchased 10 bags of Duma 43 maize packets from her local
agrovet (a market where farmers purchase agricultural and veterinary products). When she learned about the insurance that was available, attached to the seed packet, she was a little skeptical.  However, she still registered for the insurance and planted her seeds over the next few weeks. She initially planted two bags: then, after a few weeks, she planted the remaining eight bags. The adverse weather conditions registered on the days she had planted the first two bags. 

“When no call came through after I received the money, I called ACRE Africa’s customer care. I was then informed that the money was not a mistake. I was very excited! I was also very happy to get the money without having to contact anyone,” Jacinta says.

Timely claim settlement allows farmers to quickly purchase replacement bags of seeds, so as not to miss the entire planting season.

Jacinta opted to meet other household needs with the money she received.

“I paid a debt with the money,” she says. “Since it was not still raining in my village, I did not buy another packet of seed,” she explains. “This reimbursement helped me so that I did not have to go through a double loss when the rains failed.” 

Jacinta also grows beans, green gram, oranges, and vegetables on her three-acre piece of land. She is mostly engaged in subsistence farming: when she has extra produce, she sells it at the nearby
Wote market.

“I will buy the Duma 43 in the next planting season, because the seed retains moisture and gives me higher yields, compared to traditional seed,” she says. “I encourage my fellow farmers to buy Duma seeds because they are guaranteed a payout if the rains fail. The insurance works!” 

For more stories like Jacinta's, please visit: https://acreafrica.com/

[1] M-Pesa is a mobile phone-based money transfer, financing and microfinancing service launched in 2007 by Vodafone for Safaricom and Vodacom, the largest mobile network operators in Kenya and Tanzania.
 
 
GIIF in Asia Pacific
Earthquake Index Insurance
A newly designed product detail brochure for Earthquake Index Insurance (EQII) is available for digital viewing.

Since 2014, PT Reasuransi MAIPARK and GIIF have been developing EQII, a new insurance product that triggers an automatic payout based on pre-determined earthquake parameters. EQII is designed to protect the lending portfolios of banks and microfinance institutions (MFIs) from liquidity crises in the aftermath of an earthquake. The intended insured party of this product is a bank/MFI. 
Country Profile: Bangladesh
 A newly designed Global Index Insurance Facility's Country Profile for Bangladesh is available for digital viewing. The document contains an overview of GIIF's project in Burkina Faso and partner, Green Delta Insurance Co. Ltd.
Multimedia
World Bank Experts Share International Experiences with Index Insurance and Catastrophic Risk Financing

Ms. Fatou Assah (left), Program Manager of the WBG's Global Index Insurance Facility (GIIF), and Mr. Antoine Bavadi (right), Financial Sector Specialist from the Disaster Risk Financing and Insurance (DRFI) Program, spoke at the 41st General Assembly of FANAF (African Federation of Insurance Companies for African national law) on February 14. 2017 in Marrakech.

The World Bank experts were sharing their international experiences with involving insurance and catastrophic risk financing as risk management tools to protect communities from natural disasters and environmental hazards. The panel, entitled "Natural Catastrophe and Environmental Risks Coverage" was also joined by Mr. Bachir Baddou, Chief Executive of the Moroccan Federation of Insurance and Reinsurance Companies (FMSAR), and Mr. Mohamed Beavogui, General Manager of the African Risk Capacity.


Watch the video here.
In the News:
Drought insurance helps some Kenyan herders


Photo Credit: World Bank

Thomson Reuters Foundation reports that thousands of pastoralists across six counties in northern and eastern Kenya will get payouts this month under the Kenyan government's subsidized livestock insurance scheme. The disbursement will total nearly 215 million Kenyan shillings ($2.08 million), according to the article. Recently, the Government declared a national disaster after more than 2.7 million people across half of the country had been affected by the worst drought in six years.
 
The Kenya Livestock Insurance Program (KLIP), launched last year, was developed by Kenya's Ministry of Agriculture, Livestock and Fisheries, with technical assistance from the International Livestock Research Institute (ILRI), the World Bank Group, and Financial Sector Development (FSD) Kenya, Seeking Alpha also reports (link is external). The program receives reinsurance from Swiss Re.

 
See also:  UC Davis Launches $1.4m Project to Help Kenya’s Rural Poor (UC Davis)
See also:  Climate Insurance: Hot Prospect for Ethiopia (AllAfrica)
 
Infographic
Credit: AXA Global Parametrics

AXA has accelerated the development of parametric solutions products by launching AXA Global Parametrics that will broaden the range of solutions to better serve existing customers and expand its scope to SMEs and individuals.

Tanguy Touffut, previously Global Head of Parametric Insurance at AXA Corporate Solutions will lead this new entity as CEO of AXA Global Parametrics.  Read more here.
Result Stories Corner
GIIF has produced a new bilingual "Result Stories" series that captures development impacts of index insurance on the lives of insured farmers in three West African nations: Burkina Faso and Mali. The Result Stories, available in English and French, are available for download here.
Mali 

In a new GIIF Result Stories, Ms. Bintou Diakite, a founding president of ASEDEFE-YDADE (Association pour la Solidarité, l’Entraide, le Développement Economique de la Femme et de l’Enfant), recounts how index insurance has set female farmers free from the consequences of mishaps due to climate disaster. 
Burkina Faso 

Karim Traore, President of Burkina Faso's National Union of Cotton Producers, speaks about the cotton farmer's experience with agricultural index-based insurance. “It would be difficult for me to provide exact data, however, I can tell you that index insurance strongly encourages farmers in their work, and we are finding that cotton production has increased in all of the areas where farmers have subscribed to it," says Mr. Traore.
 
About Us

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.

GIIF Donors



GIIF is funded by the European Union, the ACP Group of States, 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 and countries where World Bank Group operates.
Contact GIIF

Fatou Assah | GIIF Program Manager | fassah@worldbank.org

Selin Konrat | Operations Officer | skonrat@ifc.org
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