Risk selection to be transferred to insurance industry

Risk retention analysis, by segmentation of weather risks according to frequency and severity, enables the government to define which weather risks should be transferred to a third party (e.g. (re)insurance industry).

Targeted mix of DRF and insurance (complementarity of mechanisms)

The “risk layering” approach shows how DRF and insurance complement each other with suitable products and enable the government to develop a DRF strategy with more affordable financial products, compared to ad hoc ex post financing.

(This applies also to individual producers and the private sector, which is better equipped to avoid negative coping strategies such as selling productive assets after a disaster).

Potentially better credit rating by credit rating agencies (if insured − macro level)

Local-level insurance could lead to easier access to credit for smallholder producers and small entrepreneurs.

At the regional level, by insuring the credit portfolio, rather than a farmer, the financial institutions could reduce their credit portfolio risk, potentially resulting in an easing of access to credit for smallholder producers and SMEs.