Agricultural Insurance to Assist Smallholder Farmers in the Adoption of Sustainable Farming Practices- Integrating Area Yield and Satellite Indexes in Insurance and Humanitarian Funds

In the developing world, 2.5 billion adults don't have a bank account and 200 million businesses lack access to credit. The Financial Institutions Group (FIG) at IFC works through financial institutions to provide much-needed access to finance for millions of individuals and micro, small, and medium enterprise. 

The objective of this work is to develop a methodology for integrating satellite indexes with area yield measurements for index insurance and humanitarian funds. Index insurance when it started about twenty years ago was heralded as a breakthrough for insuring farmers and rural households since it addresses some key challenges of traditional crop insurance:  moral hazard, adverse selection and high cost when it comes to individual farm loss assessment.  The emergence of index-based insurance products for addressing systemic risks in agriculture in an affordable way led to numerous projects by international development organizations, donors, private sector and NGO aiming to increase the supply of insurance either directly to farmers/rural households or through value chains. Area yield measurements have a cost, so the data gathering scale is constrained. However, neither satellite-based index insurance nor area yield based index insurance perfectly cover farmer production risks, so it is important to compare their performance and develop strategies to combine them.