A Global Index Insurance Facility has been launched as an insurance scheme to help compensate for certain catastrophic events, depending on their severity. For example, insurance will be paid out in the event of a wind storm of a certain category, drought defined as rainfall below a certain agreed figure, or an earthquake registering a certain magnitude on the Richter scale.
Index-linked insurance products eliminate the need for insurance companies to individually verify claims, reducing transaction costs and making it easier for them to offer products and services in rural communities and in frontier regions, where insurance is rarely available.
The International Finance Corporation (www.ifc.org), a member of the World Bank Group, in partnership with the European Commission and the Netherlands’ Ministry of Foreign Affairs, on 2 December in Kenya launched a programme to help farmers and others in developing countries more easily access this insurance.
Bernard Rey, Head of Operations of the European Union Delegation to Kenya, said, “As the threats posed by climate change increase, the GIIF will help people in Africa, the Caribbean, and Pacific regions reduce their vulnerability to external shocks and natural disasters and thereby support their livelihoods.”
Jean Philippe Prosper, IFC Director for Eastern and Southern Africa, says in a press release: “The GIIF will help protect farmers and vulnerable communities against natural disasters that can wipe out their livelihoods and trap them in poverty. IFC is committed to helping extend financial products and services to places where the private sector is at the early stages of development, creating more opportunities for people that need them the most.”
The facility is backed by a programme of advisory services and capacity building that will provide funding to raise the capacity of insurance companies to provide index-based insurance, help develop such products, and work to create a favorable regulatory environment by advising governments on possible regulatory changes.
The European Commission has committed €24.5 million as the first donor to a trust fund to finance the advisory services support. The fund is also supported by the Dutch Ministry of Foreign Affairs.
IFC supports private sector development, mobilizes private capital, and provides advisory and risk mitigation services to businesses and governments. New investments totaled $14.5 billion in fiscal 2009.It is seeking to increase its capital increase and create more opportunity for the poor in developing countries, including helping farmers and others access insurance.