Sustainable Land Management in the Shire River Basin- Weather based index crop insurance.

1. Sustainable Land Management in the Shire River Basin- Weather based index crop insurance. Elina Kululanga & Adams Chavula Department of Climate Change &Meteorological Services

2. Background • Weather constitutes the major source for production risk in agriculture. • Climate is closely linked to sustainability of community livelihoods . • Extreme climate variability such as floods and droughts often have far reaching environmental, health and socio-economic impacts in many developing countries.

3. To counter this trend, Innovations in managing and transferring climate risk are needed in order to increase the resilience in agricultural systems. • Index-based financial risk-transfer mechanisms are being referred for poverty reduction and climate-change adaptation thus reducing vulnerability and enabling investment and economic growth.

4. WEATHER BASED INDEX CROP INSURANCE IMPLEMENTATION PLANS

5. HOW IT WORKS • Weather indexed crop insurance was originally designed to provide compensation to poor smallholder farmers when rainfall during a crop growing cycle is insufficient for them to grow and optimize their yields. • Farmers’ willingness to buy insurance may be greater when it is tied to credit(agricultural loans). • It has proved to be a valuable tool for unlocking rural credit and hence improving rural livelihoods.

6. Step 1. OPPORTUNITY ASSESSMENT Weather information to support index based insurance • Identification of clients who are within 20 km radius .This will facilitate the need to expand weather collecting stations to include as many farmers as possible. • Data collection & development (training on data collection, cleaning, archiving in the targeted districts). • Identification of availability of adequate data and infrastructure conditions to construct the index (weather stations with long term data ) It is imperative to determine that sufficient weather stations are in place and that they are working properly

7. Step 1. OPPORTUNITY ASSESSMENT DEMAND ASSESSMENT • Monitor farmers trust in weather prediction information from the Met department. • Monitor current levels of willingness to engage in crop insurance pilots by the insurance industries. • Identify suitable micro-finance institution and credit schemes in the impact area The insurers’ presence in the impact areas is important in order to gauge their appetite for carrying the risk and understanding the product/market implications. (Personal interviews, focus groups, and surveys to be used to determine answers to the following questions. What are the key weather extremes of concern? How frequently do the extremes occur and how significant is the impact? Who is affected by these weather extremes? What mitigation or informal risk transfer strategies are currently being employed? What is the (opportunity) cost of those strategies? How much are end-users willing and able to pay for an insurance product?)

8. Step 1. OPPORTUNITY ASSESSMENT DEMAND ASSESSMENT • Assess insurance regulators their view on insurance progammes and legal implications of launching a weather index product. If the regulator is not supportive, the pilot will not be able to commence and can cause significant delays. • Identification of appropriate weather index. Product distributors. Identification of efficient delivery channels in the target districts. Potential distributors include banks, SACO, Micro Finance Institutions and agri-business organizations.

9. Step 2. Build the capacity and ownership of implementing stakeholders • Build capacity at the diverse market levels; regulators, insurers, farmers’ associations, financial service providers and clients. • More education and awareness raising is required to increase client awareness of index insurance products and demand for the service. This training and awareness-building will be implemented early at the start of the pilot and continue throughout product launch and evaluation. • Training on Insurance design and implementation using agronomic conditions. • Training on financial literacy

10. Step 3. HIRING OF LOCAL CONSULTANT Product design Actual product design will start with collecting detailed climatic and agronomic data and developing prototype contracts. Once all the data has been gathered and verified,Contracts with key stakeholder will be tested and product approval secured.

11. Step 3. HIRING OF LOCAL CONSULTANT Product pricing Following the product design, the next step is to undertake the detailed product pricing process, or if working with the reinsurer ,price the contracts. There is a need to take into account loadings such as commissions and taxes

12. Step 3. HIRING OF LOCAL CONSULTANT Development of product administration tool kit A number of tools have to be developed such as product manuals, contract monitoring where users input rainfall amounts received at the weather stations, and a recording of whether a payout has been generated or not. The sheet is developed and agreed with all stakeholders and is password protected to ensure there is no corruption.

13. Step 3. HIRING OF LOCAL CONSULTANT Promotional &educational efforts to increase demand (Client education) • Increase client awareness of the index insurance products by developing printed materials to be used by field officers to train the farmers about the principles of insurance, premiums and claims process. • This could be done through workshops and conducting monthly transformation meetings with smallholder farmer groups to disseminate financial education and technical agricultural knowledge and where the product is explained and stakeholders are requested to identify the features they think should be communicated to farmers

14. Step 3. HIRING OF LOCAL CONSULTANT Training of key staff and field officers Key staff and field officers undertake training oftrainer (TOT) sessions in order that they can then provide the necessary education atclient level. They can then hold client training meetings and identify and registerinterested farmers.

15. Step 3. HIRING OF LOCAL CONSULTANT Contract monitoring • Contract monitoring sheets and other product tools are distributed to relevant stakeholders who are obliged to enter appropriate data during the contract period. • It is necessary that MOUs should be signed with key stakeholders, and especially the data providers to ensure appropriate and timely data delivery to all concerned parties. • The product distributor then uses the farmer register to develop premium schedules which can be forwarded to the insurer. The policies are issued to the product distributor who acts as policyholder with the farmers.

16. Step 4. Promote enabling legal and regulatory frameworks • Relevant government agencies to be identified to promote enforceability of contracts within the supply chain and develop regulatory standards appropriate for index insurance products.

17. Step 4. Monitor and evaluate products to promote continuous improvement • Hold periodic meetings with clients to assess knowledge uptake and address shortfalls during project implementation. • Monitor and evaluate insurance products to promote continuous improvement, responding to changes in the market and the availability of new information and technologies. • Monitoring weather derivatives through out the cropping season. • Scientific research into the impact of micro insurance in weather index products