NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, March 7, 2006

Marc Lacey

In a pilot project that could someday transform the world’s approach to aid emergencies, the World Food Program, a United Nations agency, has taken out an insurance policy that will pay the agency should Ethiopia’s notoriously fickle rains fail in 2006.

The policy’s creators are calling it the first natural disaster insurance coverage for an international aid agency.

The policy, which costs $930,000, is designed to create a way of financing natural disaster aid. Instead of waiting for drought to hit and for people to suffer and then pursuing money from donors to respond, the World Food Program has crunched the numbers from past droughts and taken out insurance on the income losses that Ethiopian farmers would face should the rains fail.

(…) Taking out insurance on the vagaries of Mother Nature is common practice. Natural gas suppliers do it, knowing their profits will dip if the winter is mild. The same goes for farmers, who take out insurance in case of frost or excessive heat. Hurricane coverage and flood coverage are now standard offerings, as well. So why not drought coverage for some of the poorest of the world’s poor?

Wilcox said the ultimate goal was for African governments to take out their own insurance policies so that a year of drought has less of an impact on their populations. Such a policy would make particular sense in Ethiopia, where droughts are chronic and their effects on the population are profound.

To read the full article click here.

(via PSD Blog)