How agricultural insurance can improve food security – and why regulation matters

Adverse weather events cause heavy losses to farmers every year and contribute to rural poverty. Smallholder farmers and rural communities cannot manage these risks by themselves as the costs are too high. What they need is access to adequate financial instruments. Index-based agricultural insurance has the potential to offer a promising solution and contribute to food security, however most products are still in pilot stages and barriers need to be overcome before it becomes more widely available. An area that has not received much attention yet is the essential role that regulation and supervision plays in supporting and enabling wider access to index-based agricultural insurance products. In order to protect consumers and to contribute to market development regulation and supervision are key. This paper provides an overview of the benefits of agricultural insurance, explains why regulation matters and highlights some of the challenges faced by supervisors when seeking to regulate (index-based) agricultural insurance.