Index insurance trialled in sub-Saharan Africa as part of climate change fight

There are many rice fields in the Cascades region of Burkina Faso, a country prone to drought. [Sviluppo/Shutterstock]

Since the end of the 2000s, there has been an increase in projects in sub-Saharan Africa to develop index insurance, based on weather indices such as rainfall or temperature. It is intended to help farmers cope with climate change, before droughts sets in. reports

These measures should make it possible to shield farmers from the effects of adverse climatic conditions by paying them compensation before the risk occurs, rather than classic insurance which sets compensation on the basis of reported crop losses.

Index insurances have been presented as an answer to climate change which will affect certain regions of Sub-Saharan Africa, by increasing the frequency of drought.

It also holds the advantage of being cheaper and, therefore, more accessible to small farmers, who make up a large part of the total in the countries of the region.

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Currently, dozens of projects spread across twenty countries are led by the World Bank to develop this type of insurance. In West Africa, initiatives are coordinated by the PlaNet guarantee network in four countries: Benin, Burkina Faso, Mali and Senegal.

The network is in charge of creating index insurance products, which will then be sold to private actors particularly, microfinance institutions.

For Anne Durez, head of marketing at PlaNet guarantee, index insurance follows a double objective: “stabilising farmers’ incomes and allowing them to finance their activities.”

“Index Insurance is a guarantee for microfinance institutions,” she said at a seminar on risk management in agriculture on the 23 February. “These institutions can lend more to enable farmers to invest more on input and thereby boost yields.”

In Kenya this increase in yield has been estimated at 10% for corn crop, which would correspond to an additional $37 per cultivated acre.

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Hesitation on both the supply and demand sides

Despite encouraging results, index insurance policies have met with opposition from farmers and insuring microfinance organisations.

Antoine Leblois, researcher at INRA (a French public institute on agricultural science), speaking on behalf of farmers stresses: “a lack of understanding and trust in the insurance system”. “Farmers don’t understand the need for insurance.”

Hesitancy amongst the insurers is attributable to the “inexactitude of the indexes”, which are not directly linked to agricultural yields. The indices can point to drought periods without any real loss being observed.

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A system threatened by climate change

Paradoxically, although climate change is the reason behind such insurance it could also threaten their viability by leading to a higher recurrence of droughts and thus payment to farmers.

“The profitability of this insurance needs to be recalculated every year. With the increased risk of drought, the prices are also likely to go up, which would compromise access to such insurance for a large number of the population,” said Durez.

One solution would be to “mutualise the regions covered” she suggested, so that those not affected by drought would for pay for those that are.