Nature-linked Insurance

ACRE Agriculture Parametric Insurance

image--064.jpg

Launched in 2014, ACRE Africa, formerly the Kilimo Salama Parametric Insurance programme, is a weather index-based insurance service provider. Many smallholder farmers’ crops and livelihoods are at risk from weather variations, yet many farmers do not have the capital or logistical means to access insurance. A pertinent barrier for insurers is that insurance requires on-farm monitoring of losses, causing high transaction costs, which leads to unaffordable premiums for smallholder farmers.148

ACRE Africa’s index-based insurance product pays out insurance automatically in the case of extreme weather events. The automatic releasing of funds and automated pay-out calculator removes the high cost of the claims process, making insurance premiums more affordable for smallholder farmers. ACRE acts as a service provider, partnering with local aggregators (i.e. cooperatives), agribusinesses, agricultural NGOs, and microfinance institutions to develop a parametric insurance product that allows farmers to purchase insurance premiums through trusted sources. The insurance is distributed by agribusinesses, out-growers, lending institutions, seed distributors linked to mobile network operators and credit cooperatives.

First funded by the Global Index Insurance Facility (GIIF) and Syngenta Foundation for Sustainable Agriculture, ACRE Africa has now partnered with insurers such as UAP Insurance (Kenya), APA Insurance (Kenya), SORAS Insurance (Rwanda) and reinsurers Swiss Re and Africa Re.149 As of September 2020, over 1.7 million farmers across Tanzania, Rwanda and Kenya have been insured for a value of over $181 million by ACRE’s weather index-based insurance.150

148 ‘Home’. n.d. ACRE Africa. https://acreafrica.com/.

149 ‘Achievements in ACP Countries by Global Index Insurance Facility Phase 1 (2010–2015)’. 2015. World Bank Group. http://documents1.worldbank.org/curated/en/482761490702615329/pdf/113713-WP-ENGLISH-GIIF-ACP-Report-Eng-Web-PUBLIC.pdf.

150 ‘Home’. n.d. ACRE Africa. https://acreafrica.com/.

STAKEHOLDERS:

Acre Africa; Global Index Insurance Facility; Syngenta Foundation for Sustainable Agriculture; SORAS; Swiss Re; APA Insurance Kenya

Mesoamerican Coral Reef Insurance

image--065.jpg

The Mesoamerican Coral Reef Insurance is a parametric insurance scheme devised to protect the health of a part of the Mesoamerican reef, in order to maintain both its ecosystem services and storm mitigation function.

In 2017, the Nature Conservancy partnered with Swiss Re and the state government of Quintana Roo to develop the first parametric insurance product pilot that is aimed at enhancing the resilience of coral reefs and the communities that depend on them, both as a source of coastal protection and for economic livelihoods.151 This pilot is now being taken over by Global Parametrics, to fully commercialise and replicate the pilot scheme across the whole Mesoamerican reef.

In the pilot, the insurance scheme is applied to a precise area of the Mesoamerican reef, identified based on the occurrence of extreme weather events. The insurance will pay out 40percent of the total when wind speeds reach 100 to 110 knots within the designated area, and in full when the wind speeds reach 160 knots. A fund was set up as the beneficiary for the insurance, with the requirement to only use the pay-out funds for the restoration and rehabilitation of the reef (50percent of pay-out) and coastal ecosystems restoration (50percent).152 The establishment of the beneficiary fund allows for the swift reparation of the reef after a damaging storm event, which is critical to ensure the reef’s continued ecological functioning. The reef not only provides livelihoods to fishers and the tourism industry, but also serves as a natural storm buffer protecting the Riviera Maya, which provides $10 billion per year to the national GDP.153

The State Government of Quintana Roo has purchased the insurance product using tourism tax revenues. The $3.8 million insurance policy is provided by Afirme Seguros Grupo Financiero, a Mexican-based insurer.

151 ‘Launch of The Coastal Zone Management Trust’. n.d. Quintana Roo, Mexico: The Nature Conservancy.

152 Gloria Gonzalez. 2019. ‘Parametric Insurance Policy to Cover Mexico Coral Reef’. Business Insurance. 7 June 2019. http://www.businessinsurance.com/article/20190607/NEWS06/912328933/Parametric-insurance-policy-to-cover-Mexico-coral-reef.

153 ‘Designing a New Type of Insurance to Protect the Coral Reefs, Economies and the Planet’. 2019. Swiss Re. 10 December 2019. https://www.swissre.com/our-business/public-sector-solutions/thought-leadership/new-type-of-insurance-to-protect-coral-reefs-economies.html.

STAKEHOLDERS:

The Nature Conservancy; Swiss Re; Global Parametrics

Microinsurance Programme in Fiji

image--067.jpg

The Pacific Islands are vulnerable to natural disasters, yet only 9percent of the Fijian population are covered by life insurance. The United Nations Pacific Financial Programme (PFIP) aims to build a microinsurance programme, which can act as a vital tool to aid coastal fishing communities to adapt and prepare for natural disasters and their consequent financing needs.154

In partnership with the Pacific Communities (SPC) fisheries and marine ecosystems, the PFIP is researching the potential risks facing local communities, in order to build an implementation strategy for a new microinsurance solution for the most vulnerable populations in the region. The research will look into how natural disasters negatively impact the assets and living standards of the coastal communities.155

The programme is funded by the Regional Disaster Resilience in the Pacific Small Island Developing States (RESPAC) and the Russian Federation, and is implemented by the United Nations Development Programme.156

154 ‘Microinsurance Scheme for Fisheries’. 2018. Pacific Financial Inclusion Programme (PFIP). 20 February

155 ‘Microinsurance Scheme for Fisheries’. 2018. Pacific Financial Inclusion Programme (PFIP). 20 February 2018. http://www.pfip.org/newsroom/in-the-news/2018-2/microinsurance-scheme-fisheries/.

156 ‘Microinsurance Scheme for Fisheries’. 2018. Pacific Financial Inclusion Programme (PFIP). 20 February 2018. http://www.pfip.org/newsroom/in-the-news/2018-2/microinsurance-scheme-fisheries/.

STAKEHOLDERS:

United Nations (UN); Pacific Community’s fisheries; Regional Disaster Resilience in the Pacific Small Island Developing States (RESPAC); Russian Federation

Sprout Insurance Blockchain Climate Risk Crop Insurance

image--068.jpg

Launched in 2018, Sprout Insure is a German-based start-up, responsible for establishing a blockchain platform to provide climate-risk insurance to smallholder farmers in developing countries. Through the use of technology, Sprout aims to increase the crop insurance coverage rates of smallholder farmers, of which currently only 20percent (less than 3percent in sub-Saharan Africa) have access to crop insurance. This access to insurance is expected to increase smallholder farmers’ resilience to climate change.157

Using a distributed ledger system, Sprout Insure builds transparent, smart, weather-indexed crop insurance contracts. During an extreme weather event, the insurance is paid out automatically, without filing or processing a claim, facilitating quick, transparent, fair and reliable payments.

Sprout Insure has partnered with ACRE Africa and its implementation partners are Etherisc, which builds decentralised insurance applications on the blockchain. A major benefit of using blockchain for parametric insurance is the further reduction in transaction costs in the claims process. Once the platform is at a sufficient scale, estimates show it will reduce costs of issuing contracts by 41percent, allowing for a 30percent reduction in premiums, and a decrease in claim cycles from three months to one week. At its maximum potential, the platform could mobilise $6 to 10 billion in annual premiums. The pilot, which started in early 2020, is expected to insure 1.2 million farmers in Kenya.158

157 ‘Blockchain Climate Risk Crop Insurance’. n.d. The Lab. The Global Innovation Lab for Climate Finance. Accessed 2 October 2019. https://www.climatefinancelab.org/project/climate-risk-crop-insurance/.

158 ‘Blockchain Climate Risk Crop Insurance’. n.d. The Lab. The Global Innovation Lab for Climate Finance. Accessed 2 October 2019. https://www.climatefinancelab.org/project/climate-risk-crop-insurance/.

STAKEHOLDERS:

The Lab; Etherisc; IFAD; Sprout Insure; ACRE Africa