Rice harvest in Bangladesh

Direct insurance

Direct insurance schemes, which include micro insurance, provide protection for individuals or businesses – for instance microfinance institutions and seed companies – against risks such as crop loss caused by drought. When they incur a loss, they receive direct financial benefits. 

Direct insurance, too, can rely on index-based products. Just like with indirect insurance, parametric models are used in such schemes to determine whether payments will be made to the insured. The data used is usually directly linked to the risk against which policyholders seek protection, such as wind speed and precipitation levels. These models and the triggers they contain are used to calculate the loss and damage arising from the risk covered by the insurance. This form of insurance often has the advantage that it can guarantee swift disbursements to policyholders who have incurred a loss.

One purpose of the InsuResilience Global Partnership for Climate and Disaster Risk Finance and Insurance Solutions is to improve the range of direct climate risk insurance products available. The Partnership, which forms a global network, jointly drafts practical recommendations. Insurance companies are important partners in this regard – not only because they are able to provide risk capital but also because of their knowledge, data and innovative technologies.

In order to develop products that meet local needs, there is a focus on cooperation with local insurance companies and microfinance institutions. Care is being taken to ensure that the products will be accessible, above all, to the poorest and most vulnerable people. The Partnership players jointly develop solutions that are tailored to the many different challenges. For example, the development of index-based insurance products requires high levels of financial resources at the beginning. Another costly element is access to the requisite weather-related data for risk models and analyses. The BMZ focuses on implementing innovative approaches with reliance on modern technologies.

Under the InsuResilience Global Partnership, Germany provides support, for example, to a project in India which makes climate risk insurance more affordable and accessible through a satellite-based approach. The project targets primarily poor and vulnerable women who work as farmers, labourers and micro entrepreneurs. It uses freely available satellite data in order to facilitate automated flood detection. Overall, index-based climate and disaster risk insurance is geared towards covering income loss caused by droughts, cyclones, earthquakes and floods. The insurance products are sold through microfinance institutions.


Further information: (External link) Insurance market development – India