Increasing the resilience of financial intermediaries through portfolio-level insurance against natural disasters

Collier, Benjamin; Skees, Jerry R.

doi:10.1007/s11069-012-0227-0

Cited by 30 publications

(26 citation statements)

References 18 publications

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“… This article is closest to Collier and Skees () and complements and extends their research. They profile a spreadsheet‐based, banking simulation tool, which they used for educational purposes with lenders in Peru.…”

mentioning

confidence: 58%

Strengthening Local Credit Markets Through Lender‐Level Index Insurance

Collier¹

2019

J of Risk & Insurance

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This article considers lender-level index insurance as a means of expanding access to credit in disaster-prone communities. In this approach, the lender transfers the disaster risk of loans in its portfolio by contracting on an observable measure of the catastrophe. I develop and calibrate a dynamic, stochastic model using data from a community lender in Peru that is vulnerable to El Niño-related flooding. The modeled lender can insure against El Niño using an index-based product that is available for purchase by financial intermediaries in Peru. I examine how premium rates, basis risk, and background risk may influence the lender's insurance decision and credit supply. Overall, the results suggest that lender-level index insurance holds promise for reducing disaster-related credit supply shocks and expanding credit access in vulnerable communities.

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mentioning

confidence: 58%

Strengthening Local Credit Markets Through Lender‐Level Index Insurance

Collier¹

2019

J of Risk & Insurance

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“…Agricultural input suppliers and processors are also affected as they depend on the demand or the supply from farmers exposed to weather risks. Here, insurance for financial intermediaries have received the most attention (Collier et al, 2011;Collier and Skees, 2012;Miranda and Farrin, 2012;Miranda and Gonzalez-Vega, 2011;. provide evidence that severe weather events can negatively affect repayment quality of agricultural microfinance borrowers.…”

Section: Meso-level Weather Index Insurancementioning

confidence: 99%

“…Meso-or macro-level insurance focusses on insuring agricultural intermediaries (Collier and Skees, 2012). In this context, agricultural intermediaries can be any institution along the agricultural value chain that is exposed to agricultural risks, such as agricultural input suppliers, financial institutions, producer organizations, or agricultural traders (Miranda and Gonzalez-Vega, 2011).…”

Section: Introductionmentioning

confidence: 99%

Meso-level weather index insurance

Weber

Fecke

Moeller

et al. 2015

Agricultural Finance Review

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Purpose -Using cotton yield, and rainfall data from Tajikistan, the purpose of this paper is to investigate the magnitude of weather induced revenue losses in cotton production. Hereby the authors look at different risk aggregation levels across political regions (meso-level). The authors then design weather index insurance products able to compensate revenue losses identified and analyze their risk reduction potential. Design/methodology/approach -The authors design different weather insurance products based on put-options on a cumulated precipitation index. The insurance products are modeled for different inter-regional and intra-regional risk aggregation and risk coverage scenarios. In this attempt the authors deal with the common problem of developing countries in which yield data is often only available on an aggregate level, and weather data is only accessible for a low number of weather stations. Findings -The authors find that it is feasible to design index-based weather insurance products on the meso-level with a considerable risk reduction potential against weather-induced revenue losses in cotton production. Furthermore, the authors find that risk reduction potential increases on the national level the more subregions are considered for the insurance product design. Moreover, risk reduction potential increases if the index insurance product applied is designed to compensate extreme weather events. Practical implications -The findings suggest that index-based weather insurance products bear a large risk mitigation potential on an aggregate level. Hence, meso-level insurance should be recognized by institutions with a regional exposure to cost-related weather risks as part of their riskmanagement strategy. Originality/value -The authors are the first to investigate the potential of weather index insurance for different risk aggregation levels in developing countries.

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“…Net income includes three broad categories: revenues, fees, andchanges in asset values, and each of these categories are vulnerable to disasters. Therefore when a debtor is having difficulty in paying his loan, the financial institution's income decreases (Collier, 2012).…”

Section: Concept Of Debt Cancellation Due To Natural Disasters In Indmentioning

confidence: 99%

“…Financial institutions' inability to control natural disasters is a challenge for policy making in many developed countries that put importance in restoring people's revenue. Concerning income, access enhancement to financial services is an important policy as a lethargic money market may hamper economic growth and perpetuate poverty (Collier, 2012).…”

Section: Welfare State Approach To Win People Trust and Improve Economentioning

confidence: 99%