As climate change and more frequent extreme weather events increase uncertainty, index insurance has emerged to help farmers manage risk. Rather than providing farmers with a payout based on the consequences of weather or climate events – for example, crop yield – the insurance pays them based on an index such as rainfall or temperature. Index insurance eliminates the need for assessors to visit farms to inspect damages, a standard practice for traditional insurance. Before the start of the insurance period, a statistical index is developed. The payout is automatic when the indexed factor deviates from ‘normal’ levels, and claims settlements are faster and more objective. The EU-funded AMIGOclimate project has developed a new generation of methods and tools for climate risk management with objective, transparent, and independent computation and monitoring of climate indices.
Not all clouds are created equal
Project coordinator Sara Dal Gesso of the Italian SME Amigo explains: “The objective of our project was to create a cloud-based web platform, named AMIGOclimate, that integrates climate modelling with ground-based and remotely sensed measures of weather variables, to provide high-level software capabilities for customised climate risk assessment globally, including climate index computation, visualisation and reporting.” AMIGOclimate radically changes how climate data can be used, enabling the index-based insurance industry to perform tailored analyses, automatically generate maps and reports and effectively calculate premiums. AMIGOclimate eliminates the need to search for relevant data sets, download them, find software suitable to analyse them, and then generate reports and statistics. For example, for a country facing drought, high temperatures and variable winds, the insurer can create an index incorporating all three factors. After studying extreme weather events in the past, the company can select an acceptable risk level and create an appropriate insurance contract incorporating the estimated risk of these parameters.
Climate-related risk including but not limited to agriculture
More than a third of the world’s population relies on agriculture for its livelihood. Climate has significant impact on agriculture, and minimising risk is critical for small farms striving to feed a growing population, while also tackling the challenges of climate change. The Global Index Insurance Facility, an innovative programme of the World Bank Group's Finance and Markets Global Practice, covered over 600 000 farmers with some form of index-based insurance in 2016 alone. The agricultural and non-agricultural financing needs of the roughly 270 million smallholder farmers in the main market segments of Africa (chiefly sub-Saharan Africa), South-Asia and Latin America are estimated to exceed USD 200 billion, representing a promising market for insurers. Currently, users can test the web platform free of charge for a limited time; after that, they can buy an annual subscription. The team is also developing versions of the software for other sectors. Dal Gesso continues: “We realised that this platform can be easily adapted to other fields such as water management and infrastructure. We are now moving in these directions as well. Our project is not the end of a process, but a new beginning.” By transforming climate scientific research into actionable knowledge, AMIGOclimate is helping people and organisations meet some of our most pressing global challenges.
AMIGOclimate, climate, insurance, index, risk, weather, farmers, software, agriculture, index insurance, agricultural, crop, Africa, Asia, Latin America, farms, microinsurance