Environment and climate change: Affordable protection and immediate support: climate risk insurance for farmers in Zambia and Peru

Extreme weather events are occurring more and more frequently. New insurance models protect farmers from losses.

© GIZ / Ulrich Hess
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Affordable protection and immediate support: climate risk insurance for farmers in Zambia and Peru

Climate change is already making its mark. Droughts, floods and other extreme weather events are increasing all over the world. The consequences are also significant in economic terms: according to the calculations of the World Bank, the losses they cause amount to about USD 300 billion each year. The change hits the countries in the South particularly hard, especially with regard to agriculture. Small-scale farmers in particular are suffering from crop failures that can threaten their economic livelihood. 

To counter these risks, the global partnership InsuResilience was set up at the Climate Conference in Bonn in 2017. The name is a portmanteau of the terms insurance and resilience. The objective of this partnership, which has over 75 members, is to establish mechanisms that make it possible to respond more quickly to extreme weather events and to protect more people against climate risks with insurance or other instruments in the field of risk financing – especially in poor countries. The members of this international partnership include not only the states themselves, but also insurers and other companies, as well as civil society and academic organisations. 

The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH coordinates projects in Africa, South America and Asia in the context of the partnership and on behalf of the German Government. Together with its project partners, GIZ develops insurance and business models for people in regions where no suitable climate risk insurance has previously existed.

© GIZ / Ursula Meissner

Seeds, loans and insurance: protection for farmers in Zambia

In Zambia, GIZ is working on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ) to support measures that make weather insurance more accessible for small-scale farmers cultivating crops such as cotton in contract agriculture. The sub-Saharan region is being hit by climate change in two ways: less rain is falling in total, and the rainy season is no longer arriving punctually, but only irregularly. This is leading to crop losses. Insurance policies against crop failures are scarcely widespread in Zambia and are too expensive for many farmers. There is also a lack of trust that the insurance will actually pay out in an emergency.

GIZ in Zambia therefore works with agricultural companies for contracts for cotton farmers and with (micro)financial institutions that pre-finance the insurance. Farmers who are under contract with agricultural companies for example, acquire the policy together with seeds and fertiliser at the start of a season. They do not need to pay the insurance premium in advance; instead, it is collected at the end of the harvest when the farmers deliver their yield to the agricultural company. The farmers have concluded more than 100,000 such private business policies in total since 2013. 

The advantage of this new insurance is that it provides rapid assistance in the event of losses due to extreme weather. The insurance is based on an index of weather data that is provided by satellites. If the quantity of rain falls below a critical level or it exceeds a limit in the event of excessive rain, a payout sum is provided. This means that time-intensive inspections are not necessary. The insurance reduces the risk of small-scale farmers sliding into poverty and hunger in the event of crop failure. In the most recent severe drought in 2016, about 23,000 farmers received payout compensation. 

© GIZ / Gino Zúñiga

Better protection against climate risks in Peru

In Peru, too, the impact of climate change is tangible: floods and droughts have become more common, and the yield from agriculture is declining. On behalf of the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU), GIZ worked in the context of the International Climate Initiative (IKI) to help develop a system that will secure the agricultural industry against weather losses. To achieve this, GIZ collaborated with the reinsurance company Munich Re and advised the Peruvian authorities. 

As a result, agricultural insurance that is funded by the Peruvian state has been developed – which means that the insurance premiums are affordable for the farmers. This insurance is now also on offer for the coastal regions that are particularly affected by the El Niño weather phenomenon. Satellite data is also used in Peru to evaluate the climate risks. At least 14% of cultivated areas are now covered by insurance. The number of policyholders has nearly doubled since 2014, and now over 310,000 farmers have cover.

Last updated: April 2020

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