A system of drought insurance for poverty alleviation in rural areas - case study Nicaragua This report provides tools for the development of crop insurance combined with micro finance to help smallholder farmers break out of the poverty trap. Although insurance is a well-established means to manage risk, crop insurance schemes have only rarely been implemented in the developing country, smallholder context. Consequently, many farmers seek to minimise their risks, at the same time reducing the potential for bigger profits as a result of lower investment in inputs, for example.
Development in the Indian Weather Market Indian production is highly dependent upon Monsoon rainfall. Only 40% of cultivated area has access to irrigation infrastructure although only 20% of this land is effectively irrigated. About 80% of the agricultural land depend on rainfall. Since 2004, 36 facultative reinsurance contracts were closed reinsuring 272590 policies. Estimated market growth in 2007 (comparing with 2006) is about 200%.
New financial hedge for weathering the weather A San Francisco start-up is touting a new kind of financial hedge aimed at helping small businesses weather the weather. WeatherBill, a venture capital-backed firm started by two former Google employees, sells what are called weather derivatives—contracts that pay in cash if the weather hits a selected level of heat, cold, rain or drought. Weather derivatives have been available to large companies such as electric utilities for a decade. But WeatherBill is making them available over the Internet to smaller companies that are affected by the weather, such as golf courses, restaurants and even hair salons. For instance, a San Francisco golf course trying to compensate for slow business on rainy autumn days could buy a contract that would pay $500 for each day with more than half an inch of rain from 1 October to 30 November. WeatherBill quotes a price of $1,451.74 for such a contract.
The Potential Role of Weather Markets for U.S. Agriculture This article provides an overview of the potential use of weather-based derivatives for U.S. agriculture. To be sure, the market is in the early stages. Few documented weather trades have been completed for agricultural end users. As will be explained below, success for weather markets in agriculture may involve a number of uniquely designed products that do not involve farmers directly. Three classes of weather based products that link weather and agricultural risk are described below: 1) crop yield risk; 2) livestock risk; and 3) environment and natural resource risk. While much of this discussion is designed to motivate thinking, the true test of product acceptance will come in the market when the right products are designed for end user who understand the value of using weather based products to manage their risk.
Introduction to Weather Derivatives The first transaction in the weather derivatives market took place in 1997. Since that time, the market has expanded rapidly into a flourishing over the counter (OTC) market. Further growth in the end-user sector is somewhat limited by the credit issues associated with an OTC market (i.e., satisfying the International Securities and Derivatives Association Master Swap Agreement). To increase the size of the market and to remove credit risk from the trading of weather contracts, the Chicago Mercantile Exchange (CME) is introducing weather derivatives to be traded electronically on the CME’s GLOBEX®2 system. The individual contracts are calendar-month futures (swap) contracts on heating degree days (HDD) and cooling degree days (CDD) as well as options on futures. This document discusses some of the fundamentals of pricing and analyzing weather contracts.
Research Paper - Weather Risk Management Solutions, weather insurance and weather derivatives Weather affects everyone. In fact, weather is so intertwined with our life that it directly affects 20% of the economy.1 It is estimated that up to 70% of all businesses face weather risk of some sort 2 and businesses in the United States are impacted to the tune of $200 billion per year.3 Weather risk management is a new process that many businesses can take advantage of to manage the effect weather can have on revenue and expenses. These weather risk management tools are weather insurance and weather derivatives. This paper will outline weather risk management solutions, discuss the options available and the risk-return aspects of the subject.
Special event insurance - weather index products Every promoter or organizer of a sporting event, fair, festival, carnival, rodeo, air show, concert, golf tournament or any other outdoor or indoor event is at the mercy of the weather. This is usually the only thing that he/she cannot control. You can certainly lose money if your event is cancelled due to adverse weather, but you can also lose money if the weather affects ticket/concession sales even if the event is not cancelled.
India - Weather Insurance: Need Of The Hour Crop insurance has proven to be cumbersome to administer and prone to losses. The claims ratio has been around 500 per cent level and similar trends have been witnessed in almost all other countries in which this scheme is offered. Weather insurance seeks to address drawbacks of the existing measures while addressing the core issue of risk mitigation in an economically viable way. Background and evolution: Weather insurance is prevalent in US, Canada, UK and other western countries. It has found application across diverse industries like agriculture, food processing, energy, leisure and reinsurance. In India, ICICI Lombard pioneered weather insurance primarily as a weather risk mitigation tool with applications in agriculture, rural lending and energy.
Presentation by Ulrich Hess provides the basic information on the weather-based index insurance and its advantages to mitigate catastrophic weather risks in developing countries. Climate risks threaten viability and livelihoods and reduce mean income of rural households. Systemic risks are among the major obstacles to access to finance in agriculture. Traditional risk mitigation (“self-insurance”) involves over-diversification of assets and under-investment in crops. Access to formal Risk Management such as insurance can make farmers more profitable and creditworthy – but few have access. Developing countries are most vulnerable to the impact of climate change and will bear the heaviest burden of adaptation. Index Insurance offers superior risk protection. It helps to overcome moral hazard and adverse selection problems, but it suffers from basis risk. The success factor - accurate and sustainable index. Download presentation (PDF file, 455 kB)
Index Insurance Products: A Solution for Emerging Countries? Because traditional crop insurance products have complex logistical requirements for underwriting, monitoring, loss assessment and data collection, they are often unsuited for certain countries. A reasonable alternative could be crop-index products, which have considerable advantages over traditional crop insurance due to lower costs and the possibility of real actuarial assessment due to availability of weather data.
Indices correlating with the farmers’ risks do require the prerequisites of extensive market intelligence and research as well as reliable data such as weather and crop-yield data. Otherwise, farmers will not accept the products as insurance.
This article provides a brief overview of agricultural risks and traditional agriculture insurance products, describes the situation in emerging countries and discusses index products as a solution for the farmers specific risk management needs.
25.03.2008 Ukraine - Agricultural insurance seminar was conducted on March 18 for specialists of Providna insurance company. Seminar on agricultural insurance was conducted on March 18, 2008 for the specialists of insurance company Providna. Participants were trained on basics of agricultural insurance, specifics of crop and livestock insurance, principles of survey and loss adjustment. Training event was prepared by the experts of IFC Agri-insurance Development Project 27.10.2007 Global Animal Health Initiative: the Way Forward” in collaboration with the FAO at the World Bank Headquarters in Washington DC (USA), October 9, 10 and 11 2007. The World Bank and the World Organisation for Animal Health (OIE) co-organised a Conference on “Global Animal Health Initiative: the Way Forward” in collaboration with the FAO at the World Bank Headquarters in Washington DC (USA), October 9, 10 and 11 2007. 123 participants coming from international and regional organizations, representatives of governments of developing and developed countries from the five continents, and the private sector, stressed the importance and urgency of improving the governance and infrastructure worldwide in the field of veterinary zoonoses and animal diseases prevention and control mechanisms, as well as private-public partnership in the implementation of specific programs directed to animal health.
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The World Bank and the World Organisation for Animal Health (OIE) co-organised a Conference on “Global Animal Health Initiative: the Way Forward” in collaboration with the FAO at the World Bank Headquarters in Washington DC (USA), October 9, 10 and 11 2007. 123 participants coming from international and regional organizations, representatives of governments of developing and developed countries from the five continents, and the private sector, stressed the importance and urgency of improving the governance and infrastructure worldwide in the field of veterinary zoonoses and animal diseases prevention and control mechanisms, as well as private-public partnership in the implementation of specific programs directed to animal health.
