Case studies

Livestock in Mongolia are exposed to extreme climatic conditions. To reduce the impact of livestock mortality on herders’ livelihoods, herders purchase policies from private insurance companies that pay out when local livestock mortality rates exceed specified ‘trigger ’percentages. The product is currently reinsured on the international reinsurance markets. The Government of Mongolia also acts as a reinsurer and covers extreme losses.

Drought is one of the main climate-related risks for poor and food-insecure farmers in Ethiopia. The R4 programme combines four tools for risk management and offers drought insurance in exchange for work on projects that improve food security and community-wide resilience.

Ethiopia’s Horn of Africa Risk Transfer for Adaptation (HARITA) program – recently renamed the R4 Rural Resilience Initiative – is an innovative model of how demand-based disaster micro-insurance for the poor can be integrated into a social safety net (SSN) program, enhancing both its climate-related and social protection benefits. HARITA/R4 offers weather based insurance to a chronically poor, highly climate-vulnerable population in the Tigray region of Ethiopia.

Malawi is heavily exposed to the risk of drought and food shortage. The World Bank’s intermediation on index-based weather derivatives allowed Malawi to transfer weather-related risk to market counterparts. The 2008-2009 transaction marked the first time that the Bank offered a financial risk management tool to a low-income country.

Uruguay is highly dependent on hydropower for electricity and is exposed to the risk of drought and high oil prices. The World Bank executed a $450 million weather and oil price insurance transaction for the state-owned electric utility, which provides cost certainty to the energy company, budget stability to the government, and price stability to consumers. This milestone transaction, the largest executed so far, creates an important fiscal buffer, which is part of the wider risk management strategy.

A US$30 million catastrophe bond issued by the World Bank under its Capital-at-Risk Notes Program helps the Caribbean Catastrophe Risk Insurance Facility (CCRIF) transfer the natural disaster risk of 16 member countries to the capital markets efficiently and at  highly competitive prices.