Page 31 - The Insurance Times October 2024

disasters can have devastating consequences, wiping out transparent, parametric insurance minimizes delays and
homes and assets in a matter of hours. enables farmers to reinvest in their fields for the next
planting season.
The Role of Inclusive Insurance in
2. Index-Based Livestock Insurance
Addressing Climate Risks In addition to crop insurance, index-based insurance
In light of these challenges, inclusive insurance has emerged products have been developed for livestock owners,
as a vital mechanism for protecting vulnerable populations particularly in regions where pastoralism is the primary
from the worst effects of climate change. By providing livelihood. In East Africa, for example, pastoral communities
affordable coverage tailored to the needs of low-income rely heavily on livestock for their income, and droughts can
individuals, inclusive insurance products help to mitigate the lead to massive livestock losses.
financial risks associated with climate-related events.
To address this, organizations like the International Livestock
1. Parametric Insurance for Farmers Research Institute (ILRI) have introduced index-based
Parametric insurance, which pays out when predefined livestock insurance (IBLI). Similar to parametric insurance,
conditions such as rainfall levels or temperature thresholds IBLI uses satellite data to monitor vegetation levels, which
serve as a proxy for pasture availability. When pasture levels
are met, has gained traction as an innovative solution for
smallholder farmers facing climate risks. Unlike traditional drop below a certain threshold, payouts are automatically
insurance, parametric insurance does not require triggered, allowing livestock owners to purchase fodder and
policyholders to file claims based on actual losses. Instead, water for their animals. By providing a financial cushion
payouts are triggered automatically based on weather data, during periods of drought, IBLI helps pastoralists avoid
making the process faster and more efficient. distress sales of their livestock and maintain their herds until
conditions improve.
In Kenya and other parts of sub-Saharan Africa, parametric
insurance has been a game changer for farmers who are 3. Weather Derivatives and Microinsurance
increasingly facing drought conditions. Companies like Pula Beyond agriculture, other sectors are also benefiting from
and Acre Africa offer parametric insurance products that climate-related insurance products. In countries like
provide financial protection against crop failures due to Bangladesh, weather derivatives are being used to protect
insufficient rainfall. These products leverage satellite data coastal fishermen from the impact of cyclones and storm
to monitor weather conditions and trigger payouts when a surges. These products, similar to parametric insurance,
drought is detected, allowing farmers to receive provide payouts based on predefined weather conditions
compensation before their crops fail completely. such as wind speeds or storm intensity.

In 2024, Pula continues to expand its reach, having insured Microinsurance products, designed to offer coverage for
over 6 million farmers across multiple African countries. The low-value assets at an affordable premium, are also playing
company's innovative approach has helped farmers maintain a critical role in protecting vulnerable communities. In 2024,
their livelihoods even in the face of worsening climate the microinsurance sector continues to grow, with products
conditions. By ensuring that payouts are quick and tailored to address the specific risks faced by different
populations. For example, microinsurance policies for urban
slum dwellers may cover damages to homes and personal
belongings caused by flooding or extreme weather events.

Challenges in Scaling Inclusive Climate
Insurance
While inclusive insurance products have demonstrated
significant potential in protecting vulnerable communities
from climate risks, scaling these solutions remains a
challenge. Several barriers must be addressed to ensure that
climate insurance reaches those who need it most.
1. Affordability and Accessibility
One of the primary challenges is affordability. Even though

28 October 2024 The Insurance Times