Manila, 9 October 2023 (TDI): The Asian Developed Bank (ADB) has reported that Asia’s agriculture sector, struggling with a staggering $49 billion in losses from extreme weather events since 2010, is at a critical juncture.
Climate change-induced disasters such as heat waves, irregular rainfall, and flooding are wreaking destruction of the region’s crops and livestock, impacting the livelihoods of millions.
In response to this crisis, experts Lan N. Le and Thomas Panella advocate for the adoption of ‘parametric’ insurance, a transformative approach that promises quicker relief for farmers facing climate-driven disasters.
Thomas Panella is the Director, of Agriculture, Food, Nature, and Rural Development, ADB Sectors Group while Lan N. Le is the Environmental Economist, ADB Agriculture, Food, Nature, and Rural Development Sector Office, Sectors Group.
Traditionally, surety-based crop insurance has proven time-consuming and costly, hindering swift assistance to farmers in distress.
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The proposed ‘parametric’ insurance model relies on pre-defined parameters to trigger payouts, overcoming the shortcomings of traditional methods. This approach offers reduced transaction costs, greater transparency, and faster processing times.
This groundbreaking concept can cover the probability of extreme weather events using parameters like rainfall, temperature, and drought—a mechanism known as weather-based index insurance.
Studies attest to the benefits of such products, citing improved risk management, enhanced farmer income, and increased resilience in the face of climate challenges.
Weather-based index insurance can also encourage the adoption of climate change adaptation technologies and farming practices, further enhancing farmers’ ability to cope with changing climatic conditions.
Despite the potential, challenges like high start-up costs, defining appropriate payout rates, and upfront premium costs need addressing. Government subsidies, international support, and private-sector investment are vital in overcoming these hurdles.
Also read: Pakistan, ADB sign agreement for Khyber Pakhtunkhwa Health Systems
The journey towards weather-based index insurance is evolving, with increasing interest and expanding programs count.
Governments, development partners, climate scientists, and the insurance sector collaboratively address challenges and fortify this critical tool for stabilizing farmers’ income.
This concerted effort is particularly vital in lower- and middle-income countries where agriculture sustains a significant portion of the population.
As the world confronts the impacts of climate change on agriculture, innovative crop insurance emerges as a beacon of hope, offering a practical solution to stabilize farmers’ income & fortify the foundation of improved agricultural practices, food security & economic development.
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