Global Index Insurance Facility (GIIF) An innovative IFC-led, funded by EC program that is expanding access to insurance for natural disasters and weather risks in developing countries Launch Event in Nairobi on 2nd Dec 2009 Traditional vs. Index-based Insurance Traditional Crop Insurance Index-Based Insurance Farmer insures crop for loss Advantages (i.e. if 20% of crop yield is • Reduced moral hazard, independent determination of loss damaged, insurance company • Lower administrative costs pays damages) • Ability to transfer CAT exposures Challenges efficiently into international • Moral Hazard markets • Claims have to be individually • Versatility: Potential to bundle checked for actual yield loss with other financial services • High transaction cost – • Flexibility to target diverse level of premiums often subsidized risk aggregation (dev. orgs, • Cause of yield loss is difficult to governments, institutions, end- identify users) • Difficult to expand in developing countries especially • Simplified assessment of Risk and for small scale farmers. claims 2 Global Index Insurance Facility Objectives • To develop sustainable local markets for index-based insurance to mitigate against weather and natural catastrophe risks in developing countries. • Improve lending in the Agriculture sector through mitigation of weather risk • Mobilize local private sector / global players Old and new • Establish knowledge management and technology distribution platform on Index Insurance 3 Facility Structure Global Index Insurance Facility (GIIF) GIIF Trust Fund (GTF) Technical Funding for Development (First priority region Sub-Saharan Africa) Partners - Underwriting Capacity - Knowledge Partial Premium Local Capacity Regulatory and transfer Support Building Policy reforms - equity investments to support capitalization of Role of the GIIF Trust Fund (GTF) re/insurance - Seek expressions of Interest, support regional initiatives companies - Knowledge Management and Distribution Center - Funding available to support initiatives in ACP, Latin America, South and East Asia 4 Local Capacity Building • Development of skills and knowledge transfer • Development of underwriting capacity and delivery mechanisms for indexed/parametric products • Support local risk transfer projects • Scaling-up of existing projects to commercial viable scales • Awareness raising / financial literacy • Standardization of procedures • Regional training seminar • Weather data: hardware, acquisition, quality improvement, adaptation of alternative technologies 5 Regulatory Policy and Capacity Building Related Assistance The GTF will allocate funds to support policy and regulatory reforms to be carried out with World Bank support. Activities will include the following: • Developing the regulatory environment for index and parametric insurance products • Educating public officials • Training financial sector supervisory staff • Advising sovereign and sub-sovereign entities in the transfer of catastrophe and weather insurance risks through index and parametric instruments. • Regulatory capacity building at national and regional level 6 Premium Support • Premium support can be provided, subject to stringent conditions and for transitional periods. • Premium support requires an effective market tender process. • The insured will make a meaningful contribution to the cost of the premiums. 7 First round of projects in Africa Capacity Building projects Regulatory and Policy Reform projects Pipeline projects Ethiopia UAP/Syngenta Kenya PlaNet Guarantee Senegal, Burkina Faso, Mali, NAIC ILRI Kenya Cote d’Ivoire, Niger, Benin, Togo Nigeria Uganda MicroEnsure Rwanda FANAF 14 Francophone Tanzania countries Zambia Guy Carpenter/RMS Mozambique 8 Expanding GIIF to other regions East Asia/ Pacific Latin America and Caribbean South Asia 9 Key ingredients to develop index insurance • Enabling legal and regulatory environment for insurance and consideration for index insurance products • Good and sufficient weather data and adequate infrastructure (number and quality of weather stations) • Coverage of the “right” risks: less frequent but higher impact events that cause existing coping mechanisms to fail • Adequate capacity building for local institutions to develop the needed technical skills to analyze risks and develop, price and distribute appropriate and affordable insurance products • Existence of local “champions” • Support of reinsurers • Awareness raising and training for beneficiaries as well as product marketing campaigns • Best if insurance is offered as part of wider package of services 10 Challenges in moving forward • Availability and quality of weather data and weather measuring infrastructure • Technical capacity of local institutions to develop index insurance products • Attracting the attention of large re-insurers • Ability to raise awareness amongst beneficiaries (e.g. farmers, rural households, etc.) • Distribution channels to reach beneficiaries in a cost efficient manner • Cost of insurance and the ability and willingness to pay for insurance premiums • Climate change and uncertainty about weather events 11 Working with GIIF • GIIF would like to work with local financial institutions, insurance companies, agri-sector institutions and regulatory bodies to build capacity for index-based insurance products. • GIIF will provide eligible projects with development grants, in accordance to its policies, to support the following key areas  Capacity building  Policy and regulatory reforms  Partial premium subsidy  GIIF is particularly interested in Risk Transfer Projects that addresses the entire product development cycle leading to actualization of some tangible results • GIIF is open to working with multiple partners to maximize contribution to it objectives. • Program team open to receive enquiries, ideas and suggestions 12 For more information contact: • Peter Maina PMaina@ifc.org T: + 27 11 731 3223 • Martin Buehler MBuehler@ifc.org T: 202- 458-7553 13