Index insurance could help small-scale farmers build wealth and cope with climate change, but more accurate weather and climate data is needed for index insurance to catch on, writes Daniel Osgood, a scientist at Columbia University’s International Research Institute for Climate and Society (IRI). In a new piece in Nature Geoscience, Osgood and colleagues outline some of the challenges facing index insurance.
Developed by IRI and its partners, index insurance links payouts to rainfall instead of losses, eliminating the need for costly claims adjusters to verify damages. For a few dollars a year, index insurance lets farmers protect their fields from destructive droughts and floods. Test projects in Malawi and Ethiopia have been promising, but some obstacles remain.
Index insurance is affordable because payouts are linked to environmental changes, such as rainfall or vegetation growth—not actual losses. But that means scientists need to be vigilant in monitoring weather and climate data, and validating the assumptions that underlie their models, the authors write. A warming climate, for example, needs to be factored in. Marketing index insurance to the masses also poses a challenge. Very poor farmers have little to no savings, and yet must buy crop insurance at the start of the season, when money is tightest. A network of insurance brokers is also needed.
The lack of weather stations in poor countries is perhaps the biggest obstacle to expanding index insurance. Satellites are increasingly being used to collect the weather and climate data that triggers payouts. But the accuracy of this remote sensing data and its analysis by insurance providers needs to improve, the scientists warn, or farmers will be at risk of missing payouts during major droughts. That could cause people to lose faith in index insurance and its potential to lift the world’s poorest farmers out of poverty.