Weather based index insurance (WII), along with other types of agriculture insurance products, has the potential to be used as an efficient risk management tool for farmers and other players in the agriculture value-chain in developing countries. Many challenges exist with WII and these include among others, technical, operational and market environment related challenges.
Many technical challenges exist with WII. However, the key technical challenges relate to data, product design and pricing. These three interlinked and distinct areas are the most relevant for insurance companies, reinsurance companies, intermediaries and research agencies. They are also applicable for the distribution channels and farmers. This policy brief outlines some of the key technical challenges and proposes recommendations for each. This brief is a resource for regulatory bodies, policymakers and the insurance and reinsurance sectors; as a guideline when approaching these technical areas.
Technical challenges (i.e. data, product design and pricing) are the most relevant for insurance companies, reinsurance companies, intermediaries and research agencies (Bryla-Tressler 2011). These interlinked and distinct challenges determine the underwriting of policies and determine viability of products for business.