Weather Based Index Insurance


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Weather Based Index Insurance

  1. 1. …›{ý…†™q …o… ~¬„o …{ýa{.SANASA INSURANCE COMPANY (PVT )LTD
  2. 2. Description of the Concept Weather Index Based Crop Insurance is an insurance which provides financial support to the insured farmer who encounters with possible decrease of revenue from his cultivation due to the operation of risks related to weather. Financial support is given through payouts triggered by pre-specified pattern of indices related to weather risks. For the sale of simplicity and brevity the term weather Index Based Crop Insurance referred by the term Weather Index Insurance (WII).
  3. 3. Need for Weather Index Insurance Penetration of traditional crop insurance in Sri Lanka is very low. Index Insurance can be used as an efficient tool which is free from following lapses:  Delay in settlement of Claims.  Lack of transparency in Claim procedures.  Existing element of human error in the system of claim settlement.
  4. 4. Weather Index Insurance -Sri Lankan Experience Weather insurance came into operation for the first time in Sri Lanka by Sanasa Insurance company effective from Yala season 2010. Objective was to provide financial support to paddy farmers who encountered with losses from having excess or deficit rain. This insurance scheme was operated in two areas in Kurunagala and Kaluthara district on experimental basic and extended to 7 more locations in Maha 2010/2011 and Yala in 2011 Payouts from this insurance were trigged at points of variations between the pre-specified rainfall index and the observed index calculated by the metrological department.
  5. 5. Details of business performance : Yala (2010) Maha (2010/11) Yala (2011)Business Targets Number of policies 693 2500 2000 Premium income(Rs Mn) 0.6 2.0 1.6Number of insurance units sold 570 2241 1904Premium Income (Rs ) 171 000 672 300 506 700Number of Locations Cover 2 9 10Claims paid - 1058 706 340 000
  6. 6. Advantages of Weather Index Insurance Payouts are trigged by pre-specified mechanism of observing weather indices by an independent authority. Reduce occurrence of moral hazard and adverse selection. Eliminates the need for in-field assessments. Possibility of transferring risks of weather index insurance to international reinsurers.
  7. 7. Constraints in implementing Weather Index Insurance1. It is very expensive to launch weather index insurance scheme. Significant resources and technical expertise are required : To conduct initial research and product development. To initiate building capacity program within the organization, branch network and subsidiary organizations. To train insurance agents. To conduct insurance awareness programs and to educate farmers on weather on index insurance on its correct perspective.
  8. 8. Constraints in implementing Weather IndexInsurance Contd….2. Scaling up weather index insurance depends on Availability of reliable meteorological data. Availability of weather stations in close proximity to cultivating areas. Lack of awareness in weather index insurance among potential farmers. Reluctance to pay price for insurance coverage.
  9. 9. ConclusionsWeather index insurance is not a sole solution for all risksfaced by the farmer . It can not be operated in all areas. Yet,it shows great promise as a tool to reduce the sever effectsfrom weather related phenomena.It is an easily-operated strategy of free from lapses ofdelays, lack of transparency, presence of human error,bureaucracy and complicated procedures in claimssettlement.Weather insurance seems more effective when it is linked toa large package of risk management strategies and services.
  10. 10. Thank you