Satellite data for Weather Index Insurance-AgricuLtural EaRly warning system (SatWIN-ALERT)

For the more than 200 million farmers in Africa who depend on rain-fed agriculture, drought is a matter of life and death. Their vulnerability is often aggravated by a lack of access to risk management tools such as insurance, which also limits their ability to take productive risks on their farms. Index insurance, where compensation is based on weather or area yield metrics, rather than on measured losses, is an affordable alternative to traditional insurance. However, index insurance will only increase resilience to climate shocks if the index insured fairly reflects the risk for both farmers and insurers.

Index design processes are becoming increasingly sophisticated, utilizing multiple data-sources and models. A certain degree of basis risk (where compensation doesn't match observed losses) is, however, inevitable as insurance is not designed to target every risk. Anticipating basis risk that ensues from the complexity in the relationship between meteorological drought (rainfall deficit) and agricultural drought (soil moisture deficit) is a key challenge for the agricultural insurance sector.

We propose a new system, SatWIN-ALERT, which can be deployed in real time to detect and predict basis risk events as they happen. As such, it could unlock in-season actions (such as increased monitoring), or allow timely post-season index assessment or action, enabling aid agencies and governments to anticipate basis risk events, and take action to support farmers who are facing uncompensated agricultural losses. In effect, the facility to predict pay outs and losses bridges the gap between post hoc index insurance and forecast-based finance. SatWIN-ALERT provides a means of combining the data issued by existing platforms into integrated assessments of droughts and subsequent compensation. As such, it can be integrated into well-established and trusted insurance design systems, such as the ARC risk viewer (ARV) or the IRI Social Network for Index Insurance Design (SNIID).

SatWIN-ALERT builds on existing state-of-the-art practices to take a sophisticated approach to basis risk management, allowing index insurance to play an improved role within climate risk management and development. We also bring together novel existing participatory and meteorological research to build systems that are suitable for operational use in ODA countries. To do this, we draw on fundamental research on monitoring of environmental conditions, and on recent improvements in forecasts - especially on sub-seasonal to seasonal time scales, working with established partners to bring results to hundreds of thousands of farmers. We will focus on countries identified as important to our partners, specifically Malawi for our participatory research, plus Nigeria, Senegal, Malawi, Zambia and Ethiopia (amongst others) for our basis risk case studies.

In summary, the proposed project will develop a novel operational system (SatWIN-ALERT), which empowers farmers to benefit from robust financial instruments, based on state-of-the-art models, observations and forecasts. Partnership with leading practitioners in Africa will enable SatWIN-ALERT to sit within existing insurance systems to revolutionise basis risk management and build the resilience of millions of farmers to weather-related hazard.

Who might benefit from this research?

SatWIN-ALERT is designed to benefit some of the poorest farmers in the world. Immediate beneficiaries are the customers of the practitioner partners:

- R4 reaches over 40,000 farmers in Ethiopia, Malawi, Senegal, Zambia, Zimbabwe, Kenya. Uniquely amongst insurance schemes, R4 works with the very poorest subsistence farmers in Africa.

- Africa Risk Capacity (ARC) has 32 member states, including Malawi, Senegal, Kenya, Gambia, Mauritania, Zambia, Nigeria, Burkina Faso, Niger. It provides pooled risk insurance at a governmental level.

- Risk Shield has insured over 80,000 farmer households in over 30 countries, including Zambia, Nigeria, Kenya, Malawi. It has just agreed a major government contract to insure over 1 million farmers in Zambia.

- Pula consulting provides index insurance to more than 400,000 households in Kenya, Rwanda, Nigeria, Uganda, Ethiopia, and Malawi.

It is intended that these practitioners will act as demonstrators for SatWIN-ALERT and that the system will be taken up by parametric insurance schemes throughout Africa and beyond.

How might they benefit?

SatWIN-ALERT allows insurance practitioners to anticipate situations in which pay outs are inconsistent with the severity of drought. This information unlocks remedial actions, such as providing agronomical support to farmers, market intervention and in severe cases, releasing aid. Such safeguards enable farmers to invest in index insurance, secure in the knowledge that 'misfires' will be managed effectively. Ultimately, well run insurance schemes can be scaled out to new territories and markets - enabling even more farmers to benefit from insurance.

The practitioner partners and their customers will benefit as follows:

- Improved processes for monitoring of drought will enable R4 and Risk Shield to expand their schemes, benefiting more farmers.

- Improved targeting of crop cuts will improve the accuracy of Pula Consulting's products, with direct benefit for existing and new customers.

- Timely information on basis risk events will enable ARC to explain the origin of basis risk events to governments, building trust and facilitating early intervention.