WORLD FOOD PROGRAM CONSIDERS INSURANCE-BASED

UNCLAS ROME 002867

SIPDIS


FROM THE US MISSION TO THE UN AGENCIES IN ROME

USAID FOR DCHA/AA WINTER AND DCHA/FFP LANDIS, CRUMBLY AND
LAURENT
STATE IO FOR DAS MILLER, IO/EDA BEHREND AND KOTOK, AND IO/S
PODOLSKY AND LUCHI
USDA FAS FOR U/S PENN, CHAMBLISS AND TILSWORTH
STATE PRM FOR A/S DEWEY, KNUDSON AND BROTHERS-JACKSON

E.O. 12958: N/A
TAGS: EAID ADRC WFP
SUBJECT: WORLD FOOD PROGRAM CONSIDERS INSURANCE-BASED
SYSTEM FOR FINANCING EMERGENCY ASSISTANCE

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SUMMARY
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1. WFP convened an informal briefing at its headquarters on
the topic of hunger insurance on July 13. The purpose of
the briefing was to gauge donor sentiment towards the idea
of funding such insurance through premiums in an effort to
shift risks associated with natural disasters away from
crisis-affected families and onto humanitarian agencies and
their donors. Although the briefing produced more
questions than answers, it left WFP officials with a better
sense of the wide range of uncertainties from the donor
community. End Summary.
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BACKGROUND
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2. As per WFP, over 60 percent of assets in the developed
world are insured; in developing countries less than 2
percent of assets are insured. Uninsured asset loss traps
entire populations in a vicious cycle of deepening, long-
term destitution. WFP is keen to explore with donors and
the private insurance sector how to build an effective
insurance-based system for financing emergency assistance.
WFP commented that, in sub-Saharan Africa at present, about
130 million people are at risk of acute hunger (due to
drought and flood and other natural causes) and that this
population needs to be insured.


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BRIEFING ON HUNGER INSURANCE THE ADVANTAGES
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3. WFP convened an informal hunger insurance briefing for
Rome-based permanent representatives at its headquarters on
July 13. WFP Special Projects Manager, Richard Wilcox, and
World Bank Senior Economist, Ulrich Hess, lead the
briefing. Sixty-five representatives were in attendance.


4. WFP identified advantages for donors, beneficiaries and
the organization itself under the insurance proposal. They
included:


A. In terms of donors, WFP reported that the initiative
would facilitate expenditure smoothing for budgeting and
planning, not disrupt other aid programs to fund
emergencies, and generate timely cash contributions when
needed regardless of budget cycles.


B. Beneficiaries could expect greater dignity (i.e., does
not rely on beneficiary misery during the emergency to
appeal for charitable funds),timely aid, cash aid when
appropriate, and an incentive to mitigate against risks
through co-payments.


C. WFP would benefit by having timely availability of
cash, greater objectivity and rigor on needs assessments, a
reliable source of cash regardless of political
circumstances, and the use of premium payments to fund
emergency preparedness.

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CHALLENGES
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5. WFP acknowledged that the hunger insurance concept was
not without its challenges. Specifically, WFP raised
questions regarding the index and financial designs. For
example, can WFP design indices that are reliable, accurate
and insurable? Also, can WFP design insurance contracts
with feasible premiums, incentives and payout structures to
protect vulnerable people?

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World Bank experiences to date
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6. As per Ulrich Hess, the World Bank conducted Risk
Management feasibility studies during 2000 in Morocco,
Nicaragua, Tunisia and Ethiopia. In 2002, the
Bank's International Finance Corporation (IFC) Board
approved a project for Morocco entitled: "SGRI - Societe de
Gestion du Risque Intemperies" (Weather Risk Management
Company) and a second project entitled "Global Weather Risk
Facility" (GWRF) which aimed at providing weather risk
reinsurance capacity support. The Moroccan weather risk
insurance company did not materialize in the end because
declining rainfall levels led to relatively high premiums
for the semi-arid areas, and Government of Morocco signaled
it would subsidize the premiums. But, this public subsidy
element did not come through, so the weather insurance did
not materialize either. At present, the World Bank has in
place a Commodity Risk Management Group (CRMG) which has
provided technical assistance for transactions in Mexico and
India (2003 and 2004) and is currently assisting transaction
preparation in Ukraine, South Africa, Malawi, Peru, Zambia
and India. These efforts are primarily targeted at producers
but set precedents for insuring vulnerable agricultural
populations.

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THE ROAD AHEAD
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7. WFP will take what it learned during the briefing back
to its hunger insurance steering committee, which is
scheduled to meet in early September. The WFP Executive
Board will be briefed on the issue during the upcoming
Third Regular Session of the Executive Board, October 11-
14, 2004.

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Comment
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8. The meeting did not get into the tough issue - cost, as
anyone in the U.S. who owns any hurricane-exposed
beachfront property knows all too well when you want to buy
a hazard insurance policy. The World Bank "trial balloons"
need to be closely tracked. In short, "hunger insurance" is
a creative, daring idea that should be fully explored. Hall


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2004ROME02867 - Classification: UNCLASSIFIED