farmer |
Taking out
insurance to protect against climate risks is the "wrong model" for
improving countries' ability to cope and may even be worsening
inequality and vulnerability, a leading development charity said on
Wednesday.
A policy taken out
by Malawi cost the drought-ridden southern African country $5 million
but failed to deliver timely assistance to more than 6.5 million people
affected in 2016 and shows that insurance is "poor value for money",
ActionAid said.
Insurance is viewed
by some as a solution for developing countries to cushion farmers
against extreme weather that can worsen poverty and threatens to roll
back development gains.
ActionAid said in a
report there had been major defects in the model, data and process used
by insurers African Risk Capacity Insurance Company Limited (ARC Ltd)
to determine a payout to Malawi.
"Insurance is not a
quick fix for broken development, adaptation and humanitarian finance
systems," Jonathan Reeves, the report's author, said in a statement.
ARC Ltd did not
automatically trigger a payout on the policy, citing "the model
indicated a low number of people affected by drought," the insurer said
in an email to the Thomson Reuters Foundation.
ARC Ltd rejected
the findings in the report and said it had worked closely with technical
experts in Malawi to customise the insurance model.
Malawi took out
insurance based on a crop - long-cycle maize - that, as it turned out,
most farmers did not grow in the 2015/2016 season. Long-cycle maize
survived the drought, while the short-cycle maize most farmers grew did
not.
After investigating
the discrepancy, ARC Ltd made a payment of $8.1 million to Malawi in
January 2017, which ActionAid deemed "too little, too late".
The total cost of
responding to the drought cost Malawi, where more than 80 percent of the
population are smallholder farmers, an estimated $395 million,
according to the report.
NO QUICK FIX
Last year, southern
African states appealed for $2.9 billion in aid when the region was hit
with its worst drought in 35 years, affecting 39 million people. Now,
drought in the continent's east is pushing millions into hunger.
Insurance can be triggered more quickly than international aid, which can take months to fund.
ARC Ltd's cover is based on a pre-agreed plan for how the government will use the payout.
The index-based
insurance offers maximum coverage of $30 million per country per season
for drought events that occur with a frequency of one in five years or
less.
Twenty-five percent
of land-locked Malawi has experienced drought more than seven times in
the last decade, according to the United Nations' World Food Programme.
As of November 2016 around 6.7 million people, about a third of the population, were in need of urgent food or cash support.
Recent droughts
have been exacerbated by the El Niño weather phenomenon and an
infestation of armyworms, an invasive Latin American pest that has
decimated maize fields, a staple crop in the country.
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