Agro Consortium: Weather Based Index Insurance

Weather Based Index Insurance is a simplified form of insurance, where payments are made based on an index, rather than measurement of crop loss in the field. The index is selected to represent, as closely as possible, the crop yield loss likely to be experienced by the farmer due to climatic weather changes. Drought index insurance monitors crop water availability to determine drought and has a linear correlation with crop yield. It is therefore a much more suitable indicator of agricultural drought than rainfall. This is a more practical approach to insurance because: Traditional/ Conventional (individual) insurance is difficult to work for small holder farmers Transaction costs involved in providing traditional/ multi-peril crop insurance are prohibitive There are no transaction costs for measuring individual losses making it the most viable option for small holder farmers. How the Drought Index Insurance product works This insurance uses innovative satellite technology, jointly with the District’s Average area yield determined over several years as a benchmark. Any changes in yield related to weather hazards such as drought and excessive rainfall are determined at season end. When the measured index indicates a yield drop of 10% of the average expected yield, a linear pay-out is triggered to the extent of the loss experienced. Claims are automatically paid out at the end of the crop season.

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What it covers: The risks covered under the drought index insurance are; Drought: – When the required crop water utilisation is not attained due to a deficit in weather conditions necessary for optimal plant growth. Excessive rainfall: – When the required crop water utilisation is not attained due to an excess in weather conditions necessary for optimal plant growth. Basis of cover The client has the option to insure; 100% of the input loan facility Yield expected by the farmer Expected Yield = Planted Area (Acre) x Long Term Average Yield (kg/acre) x Pre-Agreed Price (UGX/kg) Exclusions Under the drought index product, losses related to pests, diseases, floods, landslides, localized storms, hailstorms, windstorms, earthquakes, poor farm management and all other unmentioned perils are not covered. Premium rates 2.75% of the expected yield/loan/amount insured in non-high-risk areas (Net of the 50% Government premium subsidy). 2.00% of the expected yield/loan/amount insured for disaster prone areas (Net of the 80% Government premium subsidy). This means the unsubsidised premium rate is 10% disaster prone areas, and 5.5% for all the other districts. Cover under the Drought index insurance will be subject to 10% Deductible which is the Insured’s contribution towards the claim/loss suffered.