Can weather index insurance be a win for all?
Developing countries are already enduring the worst of climate change. Floods and droughts are impacting natural resources and water availability, and vulnerable smallholder farmers with limited access to government support and lower capacity to adapt to these climatic events face extreme risk.
Weather Index Insurance (WII) may increase the ability of these vulnerable farmers to face climate shocks. Using mainly satellite images to help predict damage and assess losses, WII facilitates faster compensation payouts for farmers. Advances in technology and digital innovations help avoid the pitfalls of high transaction costs and therefore expand the potential reach of insurance coverage to remote areas previously considered uninsurable. But such programs still struggle to attract the clients most in need of protection. Why?
This was the question discussed at a recent IWMI dialog organized with the financial support of the CGIAR Research Program on Water, Land and Ecosystems (WLE), engaging other CGIAR Centres and partners implementing WII programs, to share their experiences from Asia and Africa. "We need to bring the social dimension more squarely into WII by designing them to be more accessible to marginalised groups," says Rachael McDonnell, Deputy Director General, IWMI. "Insurance needs to be seen and understood from a resilience lens and also from the lens of climate justice, where ensuring social inclusion is central."
As McDonnell further points out, failing on SDG 13 would also mean that countries default on their commitments under the United National Framework Convention on Climate Change (UNFCCC).Ensuring WII programs are inclusive may not only benefit farmers, but could also significantly contribute towards reaching national (and global) development policy objectives.
So how can WII be more inclusive?
Ensure stakeholder diversity from the start
In many developing countries, stakeholders at risk of marginalization represent the majority of local communities. In the Indian state of Bihar for example, 80% of farmers are small and marginal, while in Odisha it is 90%. These farmers often farm on the most vulnerable land, and typically lack the financial and other resources to access WII. Similarly, there are over 20 million marginalized pastoralists in the horn of Africa, holding nearly all of their productive assets in livestock. If WII schemes overlook the varied capabilities of these groups to access WII, it is likely to re-enforce existing inequalities where mostly the richer farmers access WII, resulting in mal-adaptation.
For example, IWMI's experience with WII programs in Bihar showed there were no explicit mechanisms to attract the farmers who were in most need of weather insurance, including women. Many WII products rolled out in the region have failed, or simply not attempted, to understand the social and economic contexts of these communities.
Participants in the dialog agreed that the first step to identifying the full range of stakeholders is to include them in systematic discussion from the outset. This not only provides the necessary insight to the ground realities and barriers faced by the target communities, but also helps to understand the specific strategies required to support these communities.
Regular dialogue and interaction throughout the insurance rollout will help build trust between insurers and local communities, avoid misplaced expectations and lead to more sustainable insurance adoption.
Form partnerships on the ground
The level of engagement and awareness required would be difficult without the support of local partner organizations such as local Non- Governmental Organizations (NGOs), Micro-Finance institutions or Community Based Organizations (CBOs) with established links to the target communities. These collaborations are critical because most private insurance companies lack the skills or capacity to conduct social assessments. In contrast to India, WII did fairly well in Northern Bangladesh, where it was implemented in conjunction with a local NGO. Such partnerships could provide the much needed contextual insight to insurers, and encourage better participation from communities that may be wary of unknown institutions. Importantly, partnerships could influence the entire WII process, helping the program to avoid mal-adaptation.
Consider entry and systems barriers in insurance design
How WII products are designed and accessed can also be linked to weaknesses in existing structures and systems. Take data, for example. Data is critical to WII for making agricultural insurance universally accessible, but as Giriraj Amarnath of IWMI points out, may not always focus on social indicators – key to informing the design of more inclusive WII products. "Failing to balance sophisticated climate modeling with an understanding of diverse, lived experience of climate impact and losses is creating a digital divide," says Deepa Joshi of IWMI. She further explains that exclusions due to this divide makes the poor and marginalized more vulnerable, as they do not appear to exist.
Levels of awareness and literacy can also be a major constraint for inclusive WII uptake, and is significantly influenced by caste, land ownership and gender. IWMI case studies found that low, marginal and landless farmers in Bihar, India and Sirajganj, Bangladesh were less able to understand written material and comprehend how the complex WII mechanisms trigger payouts. In Odisha too, these are the major barriers to adoption of insurance schemes; participants from the International Livestock Research Institute (ILRI) observed a similar situation in Kenya.
In some places, the WII eligibility criteria itself can be an entry barrier. For example, the inclusion of land titles as part of the criteria automatically disqualifies tenant farmers. This can be compounded by other barriers such as lack of finance, lack of physical mobility (female stakeholders in particular), and agency in household decision-making, contributing to poor levels of insurance adoption. It is vital therefore that these social differences are considered at initial project design and rollout to ensure the products reach the most marginalized stakeholders.
When we consider the diversity of the stakeholder groups and their entry barriers, it is clear there is no one-size-fits-all approach to designing inclusive WII products. Instead, targeted interventions are needed to fit the local contexts. Insurers also need to consider how and in what medium the stakeholders prefer to receive information, as uniform awareness- raising practices may not be effective. Getting this right is not a quick fix, but will need a systematic approach of close stakeholder engagement.
Addressing some entry barriers may not require much investment
While finding solutions to some entry barriers may require concerted effort, IWMI's work in Bihar suggests that some solutions could be low hanging fruit, if the social context is well understood at the outset. For example, noting the low representation of tenant farmers in the first year of the WII scheme, IWMI's investigations showed tenant farmers struggled to prove their tenancy as most land leases are not documented (they are verbal agreements), and thus could not meet eligibility criteria. This was overcome by negotiating with the insurer to vouch for these verbal leases, resulting in a higher percentage (an increase from 0 to 12.5 %) of tenant farmers accessing insurance the next year. Working through more challenging barriers too will depend on the extent to which the social context is understood, and the local capacities available by way of partnerships with local, trusted organisations.
Affordable insurance and sustainability
For WII to be sustainable, it should be affordable across the range of target communities. This may be possible by offering options for installment payments, bundled solutions and tapping into micro-finance. But WII should also be financially viable to the private sector. Ironically, it could be said that the more socially inclusive WII is, the more profitable it could be for insurers, as it offers them an expanded client base. Overall, WII has the potential to be a win for all, IF it ensures the most marginalized are able to strengthen their resilience and adapt to climate change.