Climate change index insurance for Nigerian farmers

Ngodoo Akuto in AllAfrica.com via the Daily Trust (Nigeria): The Copenhagen Accord puts the issue of climate change adaptation centre stage. For Nigeria this is important. The linkage between adapting to climate change and tackling growing poverty in Nigeria is particularly strong. Today, climate change is perhaps one of the greatest barriers to achieving the MDGs. Disaster risk assessment, management, reduction and sharing are strong components of the framework for adaptation agreed upon in Copenhagen. A climate-based insurance tool will provide poor farmers and other vulnerable groups with measures to cope with climate variability and change. Insurance could help the poor deal with the risks they face on daily basis.

Unfortunately, only a relatively small percentage of the richest in the world have access to insurance schemes. The world's poor have been left out of this form of protection, even though they are the most in need of it. Droughts, floods and hurricanes that are exacerbated by climate change often strip whole communities of their resources and belongings.

For instance, banks are unlikely to lend to farmers because drought and flooding can cause widespread defaults. Index insurance on the other hand, can resolve a number of problems that make traditional insurance unworkable in rural parts of developing countries. Unlike micro insurance where payouts are based on indemnity or losses, index insurance is an attractive alternative for managing climate risk because it uses a weather index, such as rainfall, to determine payouts.

With index insurance contracts, an insurance company doesn't need to visit the policy holder to determine premiums or assess damages. Instead, if the rainfall recorded by gauges is below an earlier, agreed-upon threshold, the insurance pays out. Such a system significantly lowers transaction costs and allows these policy holders to apply for bank loans and other types of credit previously unavailable to them….

Nigerian farmers, shot by Mike Blyth, Wikimedia Commons, under the Creative CommonsAttribution 2.5 Generic license