Weather insurance in practice, Ethiopia

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Presented by Eyob Meherette (NISCO) at the Workshop on Developing Index-Based Livestock Insurance to Reduce Vulnerability due to Drought-related Livestock Deaths, ILRI, Addis Ababa, Ethiopia, 12 July 2010.

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Weather insurance in practice, Ethiopia

  1. 1. WEATHER INSURANCE IN PRACTICE, ETHIOPIA Eyob Meherette/NISCO We Care We Protect Workshop on Developing Index-Based Livestock Insurance to Reduce Vulnerability due to Drought-related Livestock Deaths, ILRI, Addis Ababa, Ethiopia, 12 July 2010
  2. 2. <ul><li>I. Background </li></ul><ul><li>II. Market Based Risk Transfer </li></ul><ul><li>III. Boset Weather Index Insurance </li></ul><ul><li>IV. Challenge and Scalability </li></ul>Highlights of the Presentation We Care We Protect
  3. 3. Ethiopia, East Africa We Care We Protect
  4. 4. <ul><li>Background </li></ul><ul><li>Brief country profile(Ethiopia) </li></ul><ul><li>Area total 1.14mill. Km2 </li></ul><ul><li>Arable land 45% </li></ul><ul><li>Population </li></ul><ul><ul><li>Total 78.2mill </li></ul></ul><ul><ul><li>Density 68.6/sq.km </li></ul></ul><ul><ul><li>Working age 51.9% </li></ul></ul>We Care We Protect
  5. 5. <ul><li>Economy </li></ul><ul><ul><li>GDP Birr 336.1 bill around 28 bill USD(2008/09-NBE) </li></ul></ul><ul><ul><li>Growth average 10% last four years </li></ul></ul><ul><ul><li>Agriculture contribution 44% </li></ul></ul><ul><li>Agriculture </li></ul><ul><ul><li>83% of the population </li></ul></ul><ul><ul><li>87% of export earning </li></ul></ul><ul><ul><li>90% are small holders </li></ul></ul><ul><ul><li>97% of the farms are rain-fed </li></ul></ul>We Care We Protect
  6. 6. Agricultural Risk <ul><li>The major agricultural risk </li></ul><ul><ul><ul><li>Deficit rainfall (drought) </li></ul></ul></ul><ul><li>Risk management practices </li></ul><ul><ul><ul><li>Ex-ante </li></ul></ul></ul><ul><li>Traditional risk sharing & risk smoothing </li></ul><ul><li>Gov’t introduced </li></ul><ul><ul><li>Productive safety net program </li></ul></ul>We Care We Protect
  7. 7. <ul><li>Post-ante </li></ul><ul><ul><li>Traditionally selling of animals & other productive assets </li></ul></ul><ul><ul><li>Gov’t used to address such shock via disaster prevention & preparedness commission </li></ul></ul><ul><li>In both cases there was no market based risk transfer mechanism </li></ul>We Care We Protect
  8. 8. Crop Season Wereda Insured Farmers Potential Client Type of Cover Crop Type Farm size In ha Sum Insured in Birr Premium in Birr Claim in Birr Loss Ratio in % 2007 Lume “ Boset 97 15 8 22,896 DT “ “ Wheat Teff H.Bean 172.91 17.5 55.75 503,513.92 42,840.00 117,521.00 23,715.51 2,017.76 5,535.24 - - 120 246.16 663,874.92 31,268 2008 Lume Adama Boset Adea 224 65 146 109 133 103 25,000 DT Wheat H.Bean Wheat Teff Lentil Chickpea 324.58 78.65 118.25 49.00 76 51.25 1,446,003.9 304,356.15 526,803.75 196,490.00 224,200.00 148,215.00 68,106.78 14,335.18 24,812.25 9,254.68 10,559.80 6,980.93 91,465.78 - - 827 777.83 3,076,282.50 144,960.32 52 2009 Lume Adama Welencheti Boset Boset Adea “ “ Total 60 23 86 6 137 198 242 61 813 DT DT DT DT WI DT “ “ Wheat Teff H.Bean H.Bean H.Bean Wheat Teff Lentil 95.7 30.0 25.0 27.0 159.75 141.92 184.5 32.5 477.17 619,370.40 211,950.00 98,150.00 106,002.00 639,000.00 901,064.27 1,326,573.45 109,850.00 4,011,959.72 32,888.57 11,254.55 5,211.77 5,628.71 73,485.00 47,846.51 70,441.05 5,833.04 252,589.20 310,000 Kola -Temben 200 10,000 WI Teff 21.0 115,000.00 27,600.00 G.Total 1960 57,896 1522.16 7,867,117.14 456,417.50 401,466 88
  9. 9. <ul><li>Market Based Risk Transfer (NYALA’S Experience) </li></ul><ul><li>In the first two years 947 farmers were insured under two unions, four weredas under – DT multiple perils cover. </li></ul><ul><li>The cover was for their Teff, Wheat, Lentil and chickpea. </li></ul><ul><li>. Last season 200 farmers of Teff growers in Kola Tenben wereda (Adi ha) were insured under weather index (in cooperation with OXFAM /IRI) </li></ul>We Care We Protect
  10. 10. <ul><li>Index was based on NDVI using remote sensing methodology along with WRSI & farmers input </li></ul><ul><li>137 small holder farmers of haricot bean growers in Boset Wereda (Boffa) insured under weather index (in cooperation with WFP) </li></ul><ul><li>This year we are piloting a weather protection product in cooperation with IFPRI </li></ul>We Care We Protect
  11. 11. <ul><li>Boset Weather Index Pilot Insurance </li></ul><ul><ul><ul><li>1. Objective </li></ul></ul></ul><ul><li>This pilot intends to protect the livelihoods of small scale farmers, who are vulnerable to severe and catastrophic weather risks particularly drought </li></ul><ul><li>Enhance Small holder farmers access to agri. Inputs </li></ul><ul><li>Enabling the development of Ex-ante market based risk management mechanism which can be scalable in the whole country. </li></ul>We Care We Protect
  12. 12. 2. Target Group <ul><li>Small holder farmers(0.5ha) </li></ul><ul><li>Members of Lume, Adama farmers cooperative union(LAFCU) </li></ul><ul><li>Haricot bean/Teff/Serial growers </li></ul><ul><li>Have little or no savings to buy agricultural inputs </li></ul><ul><li>Need to buy the inputs on credit from LAFCU </li></ul><ul><li>Vulnerable to weather risk esp. deficit rainfall (drought) </li></ul>We Care We Protect
  13. 13. 3. Contract Design <ul><li>Pilot area was selected based on:- </li></ul><ul><ul><ul><li>Availability of weather station </li></ul></ul></ul><ul><ul><ul><li>Vulnerability and occurrence of deficit rainfall (drought) </li></ul></ul></ul><ul><ul><ul><li>Willingness of the Union to cooperate </li></ul></ul></ul><ul><ul><ul><li>Existence of demand (need) for weather insurance </li></ul></ul></ul>We Care We Protect
  14. 14. <ul><li>In designing the contract </li></ul><ul><ul><ul><li>Ten years rainfall data from sodere w.st (15 Km) and two years data from the Boffa w.st were used to perform the historical burn analysis (HBA) </li></ul></ul></ul><ul><ul><ul><li>To fill the statistical gap water requirement satisfaction index (WRSI) and the rainfall deficit computation panel (LEAPMETER) were presented </li></ul></ul></ul><ul><ul><ul><li> </li></ul></ul></ul>We Care We Protect
  15. 15. <ul><ul><ul><ul><li>Focus group discussion with farmers /NMA person, Agri. extension agents was conducted. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Crop cycle is divided into 3 main phases </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Initial phase (Bukaya) </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Mid phase (Abeba) </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Final phase (Eshet) </li></ul></ul></ul></ul></ul><ul><ul><ul><li>Each phase composed of several 10 days called decade. </li></ul></ul></ul><ul><ul><ul><ul><ul><li> </li></ul></ul></ul></ul></ul>We Care We Protect
  16. 16. Rainfall Deficit Computation Panel for haricot beans in Boffa We Care We Protect Date Rainfall [mm] Expected Rainfall [mm] Deficit [mm] Jul 1 - Jul 10 20 Jul 11 - Jul 20 25 Jul 21 - Jul 31 30 Aug 1 - Aug 10 42 Aug 10 - Aug 20 45 Aug 21 - Aug 31 30 Sep 1 - Sep 10 30 Sep 11 - Sep 20 25 Sep 21 - Sep 30 10 Total Phase Deficit [mm]
  17. 17. <ul><li>How it works </li></ul>International Reinsurer SwissRe. National Insurance Co. (NISCO) Support Providers Policy Holders (Far Coop Union etc) NMA Minist. Of Agrict. Partners Insured Members
  18. 18. Boffa H.beans, Mid August/2009 We Care We Protect
  19. 19. NISCO’s Agronomist discussing with farmers We Care We Protect
  20. 20. IV. CHALLENGS & SCALABILITY <ul><ul><li>Major Challenges: </li></ul></ul><ul><ul><ul><li>Infrastructure esp. weather Sts. </li></ul></ul></ul><ul><ul><ul><li>Limited Weather Data </li></ul></ul></ul><ul><ul><ul><li>Basis Risk </li></ul></ul></ul><ul><ul><ul><li>Reinsurance </li></ul></ul></ul><ul><ul><ul><li>Technical knowhow/Capacity </li></ul></ul></ul><ul><ul><ul><li>Farmers upfront paying capacity </li></ul></ul></ul><ul><ul><ul><li>Affordability </li></ul></ul></ul>We Care We Protect
  21. 21. <ul><li>Scalability: </li></ul><ul><ul><ul><li>High potential Demand </li></ul></ul></ul><ul><ul><ul><li>Well Structured Unions </li></ul></ul></ul><ul><ul><ul><li>Diversification/various products </li></ul></ul></ul><ul><ul><ul><li>Gov’t support </li></ul></ul></ul>We Care We Protect
  22. 22. We Care We Protect THANK YOU ! !

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