This document discusses how improved weather and climate information can help foster resilience for vulnerable populations in Africa through agricultural insurance programs. It notes that most farmers in developing countries face significant weather risks but lack affordable insurance options. Index-based insurance that pays out based on weather station data, rather than individual farm assessments, has potential to address this by lowering costs. However, such programs require reliable, long-term weather and agricultural data, as well as effective communication systems. Regional initiatives like the African Risk Capacity pool sovereign risk across countries to provide emergency funding in response to large-scale disasters. Overall, successful agricultural insurance requires a holistic risk management approach incorporating multiple strategies at national and local levels.

1. UNDP Programme on Climate Information
for ResilientDevelopment in Africa
Explore the new opportunitiesimprovedweather and climate informationcould bring to lower
risk and foster resiliency for Africa’smost vulnerable populations.This extended examination
on agriculturalinsurance providesdeeper exploration on a topic explored in an upcoming
UNDP publication ‘A New Vision for Weather and Climate Services in Africa.’
January 19, 2016 | Prepared CIRDA
Using Weather and Climate Information for
Agricultural Insurance in Africa
To receive a copy of the report, send an
email to gregory.benchwick@undp.org
www.adaptation-undp.org/projects/cirda

2. CIRDA Issues Brief
2 Using Weatherand Climate Information forInsurance in Africa
Overview
Lowering risk and building resiliency is an essential component of sustainable development. It constitutes a huge win
for both the public and private sectors, with increased productivity and market stealth, improved risk thresholds for
smallholder farmers, and the potential for greater market stability.
Many of the least developed countries in the world are rural and the majority of the population rely on agriculture as a
form of livelihood. Farmers face a slew of risks, from market and financials to weather, disease and pest issues. Most of
the risk and impact faced by farmers is weather related. Fluctuations in temperature, severity and frequency of storms,
or rainfall can impact the crop yield dramatically, which threatens the household welfare and ultimately threatens local
food security and political stability on the national level.
Statistics from the International Disaster Database over the last 30 years indicate that an estimated 1,000 natural
disasters took place in Africa affecting 328 million people with damages estimated at $24 trillion. Although floods have
accounted for most of the total disasters, droughts are the hazard that has affected the most people and caused the
most damage, accounting for 80% of people affected and 40% of total economic damages. These weather shocks can
have serious consequences for smallholder livelihoods, particularly when they are uninsured.
The traditional financial tools available to small-scale rural farmers are often non-existent or unaffordable, or if
provided by the state, these instruments will be focused on recovery. As a result of this uncertainty, farmers tend to fall
back to traditional methods of risk management, which includes saving money and planting lower-quality crops.
Because weather shocks are so consequential, the mere possibility of low rainfall can make farmers reluctant to invest
A New Vision for Weather and Climate Services in Africa
Upcoming UNDP Publication Examines Building Resilience to Climate Change Through Public Private
Partnerships and Advanced Weather Systems
The collection, analysis and distribution of reliable climate and weather information has the potential to greatly benefit
efforts by African nations to reduce poverty, build resilience and adapt to a changing climate. For over 30 years, the
international development community has made substantial investments in climate information systems for Africa,
nevertheless, today, according to the World Bank, “most hydromet services in sub-Saharan Africa are unable to meet
current needs for weather and climate information, and offer only limited areas of trans-boundary cooperation.” In this
report a new vision to address sub-Saharan Africa’s climate and weather monitoring and forecasting needs is explored.
This vision first looks at challenges of the current approach, and how this has affected the ability to achieve
development goals, reduce risks and empower Africa’s least-developed countries to support their citizenry with
climate information and early warning systems that can save lives, boost productivity and protect the environment in a
changing climate. This new vision includes the implementation of advanced new hydrometeorological technologies
and services, as well as the formulation of new partnerships between the public and private sectors. Creating a
sustainable model for the delivery of effective climate services in sub-Saharan Africa will require policy makers to
critically examine the status quo and establish a new vision for the implementation of this essential public service.
There is no silver bullet, but with effectively structured public-private partnerships, new technology and services,
strengthened institutions, increased regional cooperation and continued capacity building, sustainable climate and
weather information solutions are a realistic and attainable goal. Reaching this target could have a significant impact
on the achievement of the Sustainable Development Goals, protecting lives and building powerful resilience for Africa
and beyond.

3. CIRDA Issues Brief
3 Using Weatherand Climate Information forInsurance in Africa
in risky-but-profitable activities and technologies, further lowering their future earnings. Lack of insurance deters
smallholder farmers from seeking loans for fear of being unable to pay back the loans and losing productive assets,
which were secured as collateral. This paradigm of risk aversion continues to agricultural inputs such as fertilizer, better
quality seed and agricultural technology. In some extremes, domestic households are known to keep children from
school in order to utilize their services in the field. Inadequate or unaffordable risk management facilities or instruments
amplify the impacts of weather-related shocks, which result in far reaching implications on national and regional
stability.
Crop and Index Insurance
In traditional crop insurance, indemnity payments are linked to individual farmer yield or cover multiple perils (i.e. hail,
pests, diseases, etc.). In order to determine the payout, a loss assessment is performed through costly and time-
consuming individual farm visits that evaluate the impact of an event on the farmer’s yield. These insurance
instruments tend to be expensive, time consuming and in the case of developing countries, not subsidized. Farmers
that have traditional insurance have less incentive to work hard if their harvest is insured, and farmers who take more
risks might be more likely to purchase insurance, raising the costs of insurance facilities. Providing these financial
services in LDCs is expensive as it requires high premiums from the purchasers and high costs and skills of resources
from the assessing insurance company.
Index insurance links payments to an independently observable outcome, such as local rainfall, which is assumed
(based on modelling results) to be highly correlated with yields. Such an approach could solve many of the cost and
informational problems associated with traditional crop insurance. In particular, the insurer no longer must monitor
thousands of individual farms, only the local rain-gauge. This also reduces the need for skilled assessors and quantifiers
that could reduce the time required to evaluate the loss, which in turn reduces the premiums and substantially reduces
the payout time.
Establishing index-based insurance is, however, not as simple as installing a rain-gauge. A weather index can be
constructed using any combination of measurable weather variables, over any period of time. The parameters must be
chosen that best represent the risk to the agricultural end user. This implies that good quality meteorological data must
be used to correlate its influence on agricultural yield over time.
In LDCs, some of the main limitations for the implementation of index-based weather insurance include:
 t h e l i m i t a t i o n o n g o o d q u a l i t y h i s t o r i c a l a n d c u r r e n t w e a t h e r i n f o r m a t i o n
t h a t i s s p a t i a l l y r e p r e s e n t a t i v e ( o r s u f f i c i e n t l y d e n s e t o c o v e r t h e n a t i o n a l
l a n d m a s s )
 l a c k o f h i s t o r i c a l a g r i c u l t u r a l y i e l d d a t a
 c o s t e f f e c t i v e a n d r e l i a b l e d a t a c o m m u n i c a t i o n s ( r e a c h i n g b o t h i n s u r e r s
a n d e n d u s e r s w i t h r e l i a b l e a n d e a s y - t o - u n d e r s t a n d d a t a )

4. CIRDA Issues Brief
4 Using Weatherand Climate Information forInsurance in Africa
 c u l t u r a l i m p e d i m e n t s t o t h e a d o p t i o n o f n e w t e c h n o l o g i e s , p r o d u c t s a n d
s e r v i c e s
Without these parameters in place, commercial insurance providers might not be able to provide a cost-effective
insurance solution. There are a fair number of successful Index Insurance projects throughout the world, most notably
in India and in Kenya that are fully commercialised, but government subsidized. The key to the success of these
projects, however, is the participation between the public and private sectors to fund the installation and maintenance
of real-time weather observation stations and the participation of the National Meteorological and Hydrological
Services in data quality control.
Good weather insurance instruments are those that balance simplicity with complex dynamics that characterize
weather stress impacts on crop yields. They must be adapted to reflect the local conditions, and they must be simple to
understand and be easy to communicate to the farmers and stakeholders. In order to guarantee continued purchase of
the insurance product, farmers must be educated to understand under what conditions payouts will be triggered. In
Brazil, innovative ways to communicate information to farmers have been prepared in the form of graphic “comic”
booklets. This ease of communication coupled with a quality and affordable service has resulted in a participant
retention rate of over 90 percent year on year.
Sovereign Risk Insurance
The concept of index-based insurance is to use an independently
measured variable and correlate its impact to the yield of the insured
farm. In practice this works well to insure farms against isolated high
frequency incidents. In the case of widespread catastrophic events, the
value of the index insurance is limited. Typical responses to these
catastrophic events by governments are either to seek international aid,
or begin the long and arduous task of disbursing relief aid. By the time
these safety payments have been received, irreparable damage has been
done to infrastructure and livelihoods.
An appropriate sovereign risk financing strategy is therefore required to
limit the financial exposure resulting from the public financial support to
agricultural insurance. This strategy could include lines of credit or other
risk transfer options designed to limit the fiscal exposure of the
government to excessive losses. In order to lower the costs of such a
broad risk contingency scheme, a regional risk management effort could
be encouraged.
African Risk Capacity is a continental sovereign risk pool and early
response mechanism designed to provide cost-effective contingency
The CIRDA Programme
This multi-country programme
supports Climate Information and
Early-Warning Systems Projects in 11
of Africa’s Least Developed Countries
in their missions to save lives and
improve livelihoods. By building
capacity to issue extreme weather
warnings, sharing new technological
advances in weather monitoring and
forecasting, and facilitating
innovative partnerships with the
private sector, the programme works
to foster regional cooperation,
support strong institutions and build
resiliency to climate change.
Countries
 Benin
 Burkina Faso
 Ethiopia
 The Gambia
 Liberia
 Malawi
 Sao Tome and Principe
 Sierra Leone
 Tanzania
 Uganda
 Zambia

5. CIRDA Issues Brief
5 Using Weatherand Climate Information forInsurance in Africa
funding to African governments to execute pre-approved contingency plans in the event of severe natural disasters. It
was jointly developed by the African Union Commission and UN World Food Programme. The ARC’s mission is to help
African Union Member States improve their capacities to better plan, prepare and respond to extreme weather events
and natural disasters and to assist its Member States to protect the food security of their vulnerable populations.
The ARC achieves its mandate through:
 E a r l y w a r n i n g s y s t e m s
 I n d e x - b a s e d i n s u r a n c e a n d r i s k p o o l i n g
 C o n t i n g e n c y p l a n n i n g
Index-based insurance trigger payouts based on the
observable index falling below a set level in a
geographically limited area in real time. The
sovereign insurance risk insurance essentially triggers
on the observable index falling below a certain level
on a much larger geographical area based on
forecasted information. The impact of this weather
shock is then mapped against a national household
vulnerability profile to determine the total cost of
emergency response. ARC’s aim is to ensure that
sufficient planning is done upfront to ensure that
when an event is triggered, it is validated on the
ground and benefits are paid out with minimal delay
to the end user. Currently, it is estimated that ARC
evaluation and payouts to governments will be on
average of three months. This halves the national
response times of most LDCs and will serve to
protect the livelihoods of the agricultural sector.
Conclusion on Insurance
Agriculture is associated with many types of risk that
expose farmers, agribusinesses and governments to
significant potential losses. Many approaches can be
employed to manage the agriculture-related risks.
Often, several instruments may need to be applied
ARC Payouts
ARC provides insurance for several countries in Africa, using
both global satellite data and human development indices to
assess risk and provide payouts. Insurance payouts from ARC in
2014-15 can be used as an indicator of crop losses in Africa
today. To give some more perspective from a global lens,
weather-related crop losses reported in the US in 2012, a banner
year for crop losses with draughts across the US West, added up
to US$17.3 billion.
2014-2015
US$43 million in payouts.
• Kenya: US$9 million
• Mauritania: US$1.4 million
• Senegal US$3.6 million
• Niger US$3 million
• Senegal US$16.5 million (payouts triggered in late due to
drought)
• Mauritania US$6.3 million (payouts triggered in late due to
drought)
• Niger US$3.5 million (payouts triggered in late due to
drought)
2015/16
US$25 million for the eight countries (Kenya, Mauritania, Niger,
Senegal, Burkina Faso, The Gambia, Malawi, Mali)

6. CIRDA Issues Brief
6 Using Weatherand Climate Information forInsurance in Africa
within an overall risk-management framework. This framework must take into consideration at the very least:
 C o m p l e t e n a t i o n a l r i s k p r o f i l e
 R i s k m a n a g e m e n t s t r a t e g i e s i . e . r i s k m i t i g a t i o n , r i s k t r a n s f e r , r i s k
l a y e r i n g , e t c .
 P r o a c t i v e s t r a t e g i e s a t a l l l e v e l s t o c o p e w i t h t h e w e a t h e r r e l a t e d s h o c k s
 F o r m a l a n d i n f o r m a l m e t h o d s o f m a n a g i n g w e a t h e r - r e l a t e d c a t a s t r o p h e s
 P o t e n t i a l G o v e r n m e n t i n v e s t m e n t p r o g r a m m e s t o i m p r o v e t h e l o c a l
a g r i c u l t u r a l “ s u p p l y c h a i n ” i n c l u d i n g :
o I n v e s t m e n t i n s t a t e f i n a n c i a l l e n d i n g / s u b s i d y s c h e m e s
o I n f r a s t r u c t u r e i n v e s t m e n t i . e . r o a d s , e l e c t r i c i t y , i r r i g a t i o n ,
c o m m u n i c a t i o n , m e t e o r o l o g i c a l e q u i p m e n t
o R e s e a r c h a n d d e v e l o p m e n t i n a g r i c u l t u r a l s c i e n c e s , m e t e o r o l o g y ,
h y d r o l o g y