US embassy cable - 04ROME2867

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