2. Description of the Concept
Weather Index Based Crop Insurance is an insurance
which provides financial support to the insured farmer
who encounters with possible decrease of revenue from
his cultivation due to the operation of risks related to
weather.
Financial support is given through payouts triggered by
pre-specified pattern of indices related to weather risks.
For the sale of simplicity and brevity the term weather
Index Based Crop Insurance referred by the term
Weather Index Insurance (WII).
3. Need for Weather Index Insurance
Penetration of traditional crop insurance in Sri
Lanka is very low.
Index Insurance can be used as an efficient tool
which is free from following lapses:
Delay in settlement of Claims.
Lack of transparency in Claim procedures.
Existing element of human error in the system of
claim settlement.
4. Weather Index Insurance -Sri Lankan Experience
Weather insurance came into operation for the first time in Sri Lanka by
Sanasa Insurance company effective from Yala season 2010.
Objective was to provide financial support to paddy farmers who encountered
with losses from having excess or deficit rain.
This insurance scheme was operated in two areas in Kurunagala and Kaluthara
district on experimental basic and extended to 7 more locations in Maha
2010/2011 and Yala in 2011
Payouts from this insurance were trigged at points of variations between the
pre-specified rainfall index and the observed index calculated by the
metrological department.
5. Details of business performance :
Yala (2010) Maha (2010/11) Yala (2011)
Business Targets
Number of policies 693 2500 2000
Premium income(Rs Mn) 0.6 2.0 1.6
Number of insurance units sold 570 2241 1904
Premium Income (Rs ) 171 000 672 300 506 700
Number of Locations Cover 2 9 10
Claims paid - 1058 706 340 000
6. Advantages of Weather Index Insurance
Payouts are trigged by pre-specified mechanism of
observing weather indices by an independent authority.
Reduce occurrence of moral hazard and adverse selection.
Eliminates the need for in-field assessments.
Possibility of transferring risks of weather index insurance to
international reinsurers.
7. Constraints in implementing Weather Index
Insurance
1. It is very expensive to launch weather index insurance
scheme. Significant resources and technical expertise are
required :
To conduct initial research and product development.
To initiate building capacity program within the
organization, branch network and subsidiary organizations.
To train insurance agents.
To conduct insurance awareness programs and to educate
farmers on weather on index insurance on its correct
perspective.
8. Constraints in implementing Weather Index
Insurance Contd….
2. Scaling up weather index insurance depends on
Availability of reliable meteorological data.
Availability of weather stations in close proximity to
cultivating areas.
Lack of awareness in weather index insurance among
potential farmers.
Reluctance to pay price for insurance coverage.
9. Conclusions
Weather index insurance is not a sole solution for all risks
faced by the farmer . It can not be operated in all areas. Yet,
it shows great promise as a tool to reduce the sever effects
from weather related phenomena.
It is an easily-operated strategy of free from lapses of
delays, lack of transparency, presence of human error,
bureaucracy and complicated procedures in claims
settlement.
Weather insurance seems more effective when it is linked to
a large package of risk management strategies and services.