25 November 2020Actuarial & underwriting

Global Parametrics structures risk transfer solutions to protect farmers in India and Tanzania

Global Parametrics (GP), a provider of parametric protection against climate risks in emerging markets, has structured two risk transfer solutions to provide drought and excess rainfall protection for smallholder farmers in India and Tanzania.

The parametric solutions use GP’s new Water Balance Index (WBI), a multi-scalar meteorological index using monthly cumulative rainfall and potential evapotranspiration to estimate departure from the climatological norm.

The Index utilises 40-years of daily atmospheric reanalysis data supplied by the European Centre for Medium Range Weather Forecasts (ECMWF) at a 31km resolution.

One of the programmes provides a risk-transfer solution for IBISA, a Luxembourg insurtech, providing it with a backstop to mitigate the impact of extreme weather events, allowing it to scale its operations in India.

The other programme saw GP partner with One Acre Fund (OAF), a non-profit social enterprise that provides training and finance to smallholder farmers in East Africa. It uses the WBI in Tanzania to provide OAF with a tailored product to manage adverse impacts from drought and excess rain to its network of 70,000 maize farmers.

Should the index trigger, payments will be made directly to OAF which will use the capital for loan forgiveness to the farmers across impacted sites.

Both solutions in India and Tanzania are structured as an over-the-counter derivative and are backed by GP's Natural Disaster Fund (NDF). Through its partnership with Hannover Re, the NDF cedes 50 percent of the risk, bringing the global reinsurer into the transaction.

Jerry Skees, director and co-founder of GP, said: “Our WBI enables us to characterise agricultural risk anywhere in the world, particularly in areas where reliable information is not available. Deploying the index means we can now extend our footprint into India and Tanzania and provide protection for communities who need it most.”

Nearly 65 percent of the population in Tanzania is employed in agriculture , while in India agriculture employs over half of the workforce.

Maria Mateo Iborra, co-founder of IBISA, said: “Smallholder farmers are particularly exposed to extreme weather and natural hazards.”