FESA to offer drought microinsurance in Africa

Microfinance Focus, September 28, 2010: Food Early Solutions for Africa (FESA), a Millennium Development Goal  (MDG) effort commissioned by the Netherlands Minister of Development Cooperation aims to develop and implement a large scale, low cost drought insurance approach that reaches farmers in Africa. It is carried out by EARS Earth Environment Monitoring in cooperation with RABO Development and Ecorys.

EARS is receiving hourly visual and thermal infrared Meteosat data. With support of Eumetsat and the Netherlands Meteorological Service, a 30 years historical database has been composed. All these data have been and continue to be processed to temperature, evapotranspiration and precipitation data fields. The data have continental coverage and 3 km spatial resolution. Alternative drought indices have been considered, data properties have been investigated and burn studies have been carried out for 29 locations in Tanzania. The first phase of the project has been completed and results have been consolidated and published in the report “FESA Micro-insurance: methodology, validation, contract design”.

The study concludes Meteosat relative evapotranspiration (RE) to be the most suitable drought index with the lowest basis risk. RE represents water use by the crop and is closely related to crop growth. Though often used, precipitation (PREC) is considered less suitable, as it preceeds crop growth by months and its fate is unknown.  An advantage of the new RE index is its normal distribution, which allows triggers to be easily predicted.

A crop insurance hurdle, that the study effectively deals with, is the spatial and temporal variability of the growing season. Particularly when applying a multi-phase contract structure, an accurate determination of the start of the growing season is essential. A method has been developed that determines the sowing window and the actual start of the growing season automatically on the basis of the satellite data.

The FESA approach offers high potential for insurance scaling up and corresponding economies. To this end a climatic zoning approach will be followed, where each zone is characterised by a specific sowing window and a specific RE-trigger derived from the historic database. In this way a single, fixed premium, parametric contract becomes feasible, where only the location/zone of the insured has to be determined and the contract parameters are then read from a table.

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