COLARP plans to launch index-based agriculture insurance

Kathmandu, July 3

Consortium for Land Research and Policy Dialogue (COLARP) is conducting feasibility testing to introduce index-based flood and drought insurance in paddy crop in Kailali district.

The organisation has executed the ‘Testing the feasibility of Index-Based Agricultural Insurance against water-induced disasters in Nepal in collaboration with the USAID’s Tayar Nepal – Improved Disaster Risk Management Project.

The project will identify whether an index-based insurance product can be designed to effectively transfer risk for smallholder farmers.

“It will also move from the design phase to the field to assess how an index-based insurance product might be delivered in the field. The developed model and handy software application (that implements the model) will be reliable, applicable, and acceptable (with a minimum cost-burden) to insurance companies and farmers,” said COLARP.  

Initially, the project is launched in collaboration with Sagarmatha Insurance Company in Bhajani Municipality of Kailali as a feasibility testing. Then it will be expanded to other areas.

The general agricultural insurance in practice in Nepal is unable to appropriately address the impact of floods, draughts and other natural disasters while other countries are applying index-based insurance to patch the shortcoming of the traditional insurance.

Index insurance is an innovative financial tool proven to affordably protect smallholder farmers when they lose crops to natural shocks and hazards.

“We have launched the project considering the weaknesses of traditional agricultural insurance. The aim of this project is to create a situation whereby farmers have better insurance coverage for their agricultural produce and get appropriate compensation,” Dhanej Thapa, Executive Director of COLARP, said in an induction workshop for the project on Friday evening.

Traditional indemnity-based insurance, which pays out for verified losses, does not work for small-scale farmers due to its high costs. Index insurance avoids these costs by basing payouts on an index based on data from satellites or weather stations, or on estimates of average losses in an area, COLARP said in a statement.

After its success in developed countries and wide adoption in China and India, Nepal has also introduced weather-based index insurance.

“However, there are several challenges and barriers to piloting and upscaling, and diversifying policy products related to index insurance,” said COLARP.

Published in The Rising Nepal daily on 4 July 2021.