POVERTY: SOUTHERN AFRICA: Taking the risk out of subsistence farming

 Photo: Mujahid Safodien/IRIN
A field of maize in Lesotho destroyed by the recent flooding

JOHANNESBURG, 8 March 2011 (IRIN) - Farming is a risky business anywhere in the world, but especially if you are a subsistence farmer in southern Africa, where a few weeks of too much or too little rain can wipe out your one hectare of maize and your ability to feed your family in the coming months.
Thousands of small-scale farmers are faced with this scenario after heavy rains fell across much of the region between mid-December 2010 and February 2011. Government and NGO assistance could take months to reach them, if at all, and many will struggle even to afford seed for the next planting season.
Farmers in the developed world insure their crops against multiple hazards, including extreme weather, but in Africa insurance premiums are beyond the means of most small-scale farmers. Insurers are also reluctant to take on the cost and complexity of designing suitable policies and assessing claims in often remote areas.
But what if the premiums were affordable, and insurers did not have to investigate each individual claim but could rely on meteorological data to trigger payouts?
Weather index-based insurance, a form of micro-insurance, has been generating a buzz in development circles because it has the potential to provide a level of social protection to farmers and their families in flood- and drought-prone developing countries.
Unlike traditional insurance, which requires evidence that a crop has been damaged or destroyed, index-based insurance automatically pays out according to a pre-determined meteorological measure, such as a certain number of days without rain.
"We thought, ‘How can we take away the risk of drought so banks lend to farmers so that they can increase inputs and yield?’" said Richard Leftley, CEO of MicroEnsure, a UK-based company that started offering weather-index insurance in partnership with the World Bank, to groundnut farmers in Malawi in 2004.
The results were impressive. Having insurance allowed the groundnut farmers to secure small loans, making it possible for them to buy better seeds and fertilizer, and eventually increase their yields by as much as 300 percent.
Initially the insurance payouts were triggered by rainfall levels, but as drought is not primarily determined by how much rain has fallen, but by how many days crops have received no rain, farmers started being compensated after a certain number of "dry days".

More weather stations needed
Index-based insurance relies on weather data to process claims, so farmers have to live within 20 km of a weather station to be insured.
MicroEnsure now runs index-based micro-insurance schemes in Tanzania, Rwanda, India and the Philippines, but a scarcity of functioning weather stations in Malawi has prevented it from reaching more than about 850 farmers, or from expanding to other countries in the region.
The only country in the region with a large number of weather stations and a well developed insurance sector is South Africa, but Shadreck Mapfumo, MicroEnsure's vice-president for agricultural insurance, said most farming there was done by commercial farmers and there was little demand for micro-insurance.
"There's phenomenal demand in other countries in the region, but… [they do not have] the infrastructure," said Mapfumo.
Governments were often willing to build more weather stations but lacked funding. Even when donor funding was secured and more weather stations had been built, three to four years of data were required before an index-based insurance product could be designed and sold.
"Part of the solution... would be a combination of weather stations plus some form of satellite data," said Mapfumo. Index-based insurance schemes in other countries, such as the Philippines and Ethiopia, used information from satellites.

Affordability
Persuading small-scale farmers to pay even very low premiums for insurance they might never use was another challenge, said Leftley.
Policies typically cost about 10 percent of the value of the insured crop, but after finding that most subsistence farmers were only willing to pay 3 percent to 5 percent, MicroEnsure redesigned its products to cover farmers only during the crucial planting and harvesting seasons.
The low cost of policies means that MicroEnsure has to keep overheads to a minimum by partnering with banks, micro-finance organizations and NGOs to act as its sales arm. The company also has funding from the Bill and Melinda Gates Foundation, which has eased the pressure on its weather-index insurance to generate an immediate profit.
In developed countries agricultural insurance is usually subsidized by government. Doubell Chamberlain, of the Centre for Financial Regulation and Inclusion, a non-profit think-tank based in Cape Town, said most micro-insurance schemes for farmers in Africa were subsidized by NGOs, credit providers, or the distributors of agricultural inputs such as fertilizer.
Leftley is hopeful that micro-insurance for farmers in disaster-prone developing countries could be recognized as a way of adapting to the effects of climate change, allowing access to funding set aside for mitigation to build more weather stations and subsidise premiums.
In the meantime, a programme led by the World Bank's International Finance Corporation (IFC) has helped expand access to index-based insurance for farmers in Kenya and Rwanda, and is currently conducting a feasibility study in Zambia.
Mapfumo cautioned that the insurance did not protect small-scale farmers from other risks, such as low prices for their maize crops, which could prevent them from repaying loans.
"For weather-index schemes to really work well, you have to make sure farmers are getting other assistance," he told IRIN. "In years where you don't have drought, farmers might still not do well because they don't know how to properly look after their crop."
http://www.irinnews.org/report.aspx?ReportID=92136

POVERTY: Low-cost insurance could provide protection against natural disasters

Annie Kelly  21 February 2011 : guardian.co.uk
Low-cost insurance that covers the lives, health and property of the poor could provide protection against natural disasters


People travel by boat through a flooded street of a town in Colombia. Photograph: Carlos Ortega/EPA

In December 2010 devastating flooding in Colombia killed more than 200 people and left 1.7 million homeless. The damage caused was catastrophic, with 628 cities and towns hit by floodwaters, over 1,800 homes destroyed and a further 256,000 damaged.
Like the victims of most natural disasters across the world, the vast majority of those who lost relatives, homes and belongings, many of them poor farmers living in isolated rural areas, will receive no compensation for their losses and will have to rebuild their lives from scratch.
With the floods largely ignored by the international community, government assistance patchy and slow, and aid agencies struggling to fill the void, Colombia's insurance agencies are saying they can provide a much-needed safety net for when the rains return.
Microinsurance, low-cost insurance policies that cover the lives, health, crops and property of the most vulnerable, are being seen as a central way of providing social protection to the increasing numbers of people affected by natural disasters such as hurricanes, flooding and drought.
A recent report by the German insurance giant Munich Re calculated that 2010 was the second worst year for disasters since 1980. It reported that 950 global catastrophes had amounted to overall losses of around $130bn. Of this, only around $37bn was insured. For example, only 1% of the $14bn of property damage caused by Haiti's massive earthquake was covered by insurance.
At the Bonn climate change talks in 2008, microinsurance was touted as a central component of climate change adaptation measures in Africa, Asia and Latin America.
Yet while microinsurance has seen increasing success in Africa and Asia, it has so far failed to make significant inroads into the Latin American market. But this could be changing.
The Colombian offices of insurance companies such as Liberty and ESA have told journalists that they are seeing a spike in the number of people taking out microinsurance policies. ESA says it is selling more than 60,000 microinsurance policies a month, mostly health , for around $1 a month.
There are hopes that microinsurance could offer some form of social protection in other countries across the region. A government-backed scheme run by Peruvian insurance company La Positiva targets over one-third of Peru's 9 million rural population, offering micro-life insurance at a marginal cost of the income generated by a family's annual harvest.
The cost of the insurance, which is between $0.5 and $2 a month, is added to the water irrigation price already paid by the farmers. Brazil and Mexico have also been identified as huge markets for growth, with millions of potential customers.
Yet despite the buzz surrounding microinsurance, the industry's reach is still limited. The 150 million people currently holding policies represent only a small fraction (around 5%) of a potential market of up to 3 billion.
Unlike microfinance programmes that provide people with instant cash, the insurance industry has so far struggled to overcome the simple problem of trying to ask poor people to pay for something they might never use.
Richard Leftley, the chief executive of UK-based MicroEnsure, one of the leading microinsurance companies, says that it has all but scraped the idea of trying to sell policies direct. He says turning up in towns and villages and asking poor families to buy insurance simply doesn't work. "Trying to explain to someone with no prior experience of insurance that if you pay even just a little bit every month then someone will pay you back if your crops failed or your child is hospitalised is often met with a perfectly understandable 'yeah right' response," he says.
Instead, the industry is evolving, with many policies now being sold as add-ons to products and brands that people already use and trust. For example, MicroEnsure says it is now conducting most of its business in Africa through partnerships with mobile phone companies.
Phone companies trying to get people to stop using multiple sim cards and stay loyal to one air-time provider are offering life or health and disaster insurance as an incentive. People who buy credit for one month get a month's worth of insurance at no extra cost.
Other obstacles are also stunting the potential of microinsurance as a widely used financial service for those vulnerable to natural disasters.
Weather-based claims have proved tricky. Microinsurance companies have had to dictate levels of rainfall as a way of setting limits for claims. Leftley says problems have occurred when these limits haven't quite been reached yet farmers still believed their crops had been damaged and expected compensation.
Major insurance firms are still being put off entering the market because microinsurance claims have to have few, if any, exclusions. Claims have to be paid almost instantly. It only takes one company to fail to pay out to its customers for years of fragile trust-building to be destroyed in an instant.
Yet Leftley believes microinsurance's time has come. He points to the increasing backlash against microfinance as a "fix-all" solution to poverty as stories mount of families being put under unbearable and devastating pressure to pay back microfinance debts.
"I think credit has been seen as the easy solution for global poverty, and the micro-finance industry has been drinking its own Kool-Aid for a bit too long," he says. "While credit is the best option in some situations, people are starting to realise that there are other options – and this can only be good for the microinsurance industry."
http://www.guardian.co.uk/global-development/poverty-matters/2011/feb/21/micro-insurance-protect-poor

POVERTY: Micro-insurance to alleviate poverty in country

January 14, 2011
KARACHI: Without meeting the insurance needs of low-income people, the risks to economic development cannot be eliminated. The recent floods proved this point because in the absence of proper insurance coverage, the economic losses suffered by the poor had a devastating effect on the financial stability.
While realising the needs of the micro-insurance segment and the huge potential economic impact on the target community, the apex regulator, Securities and Exchange Commission of Pakistan (SECP) initiated the dialogue with the insurance industry last year. In this regard, a task force has been set up comprising major stakeholders including representatives from SECP and State Bank of Pakistan, insurance companies and microfinance banks, and supported by the Center for International Private Enterprise. staff report
http://www.dailytimes.com.pk/default.asp?page=2011%5C01%5C14%5Cstory_14-1-2011_pg5_6