Risk diversification and up-scaling potential - Sri Lanka

This document describes an index-based crop insurance project that was centered on the adaptation of a weather-based crop insurance model used in India to the Sri Lankan environment. This project included the development and testing of new methodologies to streamline the overall process, improve delivery mechanisms, and raise the awareness of insurance among rural Sri Lankans.

The development of sustainable insurance solutions requires a thorough risk assessment, modeling and layering. Agricultural and climate risks are mainly of a systemic nature, i.e. they affect a large geographic area or large parts of the population simultaneously. If the insured risk is not adequately spread, one catastrophic event can threaten the viability of the whole scheme. To lower covariate risks, the portfolio thus needs to be diversified in terms of crops, type of risks, and different geographical regions.