If insurance companies pay out too often farmers will be threatened with ruin

Tilo Arnold in Seed Daily: Insurance can help farmers to survive dry periods. However, it can also result in the long term in overgrazing and therefore threaten their existence if insurance companies pay out in periods of moderate drought and farmers change their management strategies as a result.

This is the conclusion of the world's first study on the ecological effects of rain-index insurance. As the international community decided at the UN Climate Change Conference in Cancun to set up a fund with which industrial nations intend to support developing countries with 100 billion dollars per year from 2020 for climate adaptation, rain-index insurance might experience a boom in the next few years.

Politicians should therefore be particularly cautious if they support such insurance with subsidies for example. Negative effects on the ecosystem can only be prevented if ecology and economics are taken into account, therefore securing the existence of farmers for the long term, according to the scientists in the journal Ecological Economics.

Rain-index insurance protects farmers against weather catastrophes. They do not have to provide specific proof of their losses as is otherwise the case, but the payout is linked to a predefined rain index. If less rain falls than the agreed threshold level, the farmers receive the contractually agreed compensation which should secure their survival.

The insurance is therefore viewed by development aid organisations as a concept to prevent famines brought on by drought like the current famine in eastern Africa for example. According to the UN World Food Programme (WFP), in 2009 around a million people were insured in this way with a total of around one billion US dollars. Around one billion people worldwide, in particular in dry regions, are dependent on livestock farming; a lack of rainfall therefore threatens their existence....

Livestock at San Esteban de los Patos. Shot by Eugenio Vega, Wikimedia Commons, under the Creative Commons Attribution-Share Alike 3.0 Unported