US embassy cable - 05ROME2226

UNCLAS  ROME 002226 
 
SIPDIS 
 
 
FROM U.S. MISSION IN ROME 
 
STATE FOR IO/EDA SKOTOK 
USAID FOR DCHA, OFDA GOTTLIEB, MMARX; FFP LLANDIS 
 
BRUSSELS FOR PLERNER/USAID 
GENEVA FOR NKYLOH/USAID 
 
E.O. 12958:   N/A 
TAGS: EAID, EAGR, SENV, UN, FAO 
SUBJECT: POVERTY INSURANCE: ROME-BASED AGENCIES AND PERMREPS 
DISCUSS EUROPEAN THINK TANK'S PROPOSAL 
 
 
1. Summary: On June 29, 2005, the Italian Committee of the Thomas 
More Institute hosted a conference at the United Nations (UN) 
Food and Agriculture Organization (FAO) on poverty insurance, 
entitled "Reinsurance: A New Key to Development Aid." French 
academic Michel Vate was the featured presenter, while one expert 
from each of the Rome-based food agencies FAO, World Food 
Programme (WFP), and the International Fund for Agricultural 
Development (IFAD) participated in a roundtable discussion on 
current insurance schemes to reduce poverty.  The central premise 
was that economic insecurity caused by natural or other shocks is 
a major contributor to underdevelopment, and that insurance and 
re-insurance mechanisms supported by development aid and private 
investors could help the poor manage such risks.  U.S. Ambassador 
Tony Hall, along with his counterparts from France and the United 
Kingdom, provided closing remarks in which they welcomed 
innovative ideas for tackling poverty and underdevelopment, but 
questioned the specifics of Vate's proposal.  End Summary 
 
2. Background: The Thomas More Institute is an independent 
European think tank based in Brussels and Paris, which aims to 
provide a forum for innovative ideas and solutions to the world's 
current and future problems (for more information, refer to 
www.institut-thomas-more.org). On June 29, 2005, the Italian 
Committee of the Thomas More Institute hosted a conference at FAO 
on poverty insurance, entitled "Reinsurance: A New Key to 
Development Aid." 
 
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Conference Participants 
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3. Despite the fact that June 29 is local holiday in Rome (Saints 
Peter and Paul day), the conference was fairly well attended by 
foreign representations (mainly African) as well as international 
organizations and even a clergyman. Romualdo Bettini, Italian 
Ambassador to the UN agencies in Rome gave opening remarks, while 
Gustavo Selva, President of the Foreign Affairs Committee of the 
Italian Chamber of Deputies, provided the introduction. 
University of Lyon Professor Michel Vate's featured presentation 
on "Reinsuring the Planet: Towards a Pro-poor Financial 
Globalization" was followed by a roundtable discussion by experts 
from each of the Rome-based food agencies:  FAO, IFAD and WFP. 
U.S. Ambassador Tony Hall, along with his counterparts from the 
United Kingdom and France, ended the conference with closing 
remarks. 
 
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What is Poverty Insurance? 
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4. As major disasters due to climatic or geologic changes tend to 
occur at measurable frequencies, international finance and 
humanitarian organizations have teamed up recently to come up 
with alternatives in providing aid to affected countries as a way 
to mitigate risks.  The effort has lead to a mechanism called 
poverty insurance, also interchangeably known as hunger or 
weather insurance.  Poverty insurance aims to alleviate the 
economic stress caused by disaster by insuring against the event. 
The concept is similar to the hurricane/weather/crop insurance 
schemes found in developed nations.  Insurance helped support 
development in countries in the north, but the poverty faced by 
many countries in the south is an impediment for insurance, 
either because the poor cannot afford the premiums or there is no 
financial system in place to support an insurance scheme. 
Academic experts, economists and humanitarian practitioners are 
working together to come up with poverty reduction insurance 
mechanisms that are either fully or partially financed by capable 
entities (i.e., donors, host nations, or developing nation 
constituents themselves). 
 
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Michel Vate and "Planet Re" on Reinsuring the Planet 
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5. French academic Michel Vate explained that "Planet Re" is a 
global pyramid with millions of the world's poor threatened by 
poverty at its base.  At the top are the major international 
organizations like the World Bank, the International Monetary 
Fund, the European Union and UN agencies like FAO.  Small 
premiums paid by the poorest at the bottom of the pyramid and 
managed by the international associations and major insurance 
companies at the top of the pyramid could lead to the creation of 
an insurance system in the interest of the world's neediest.  It 
 
 
would be a "hand-up" approach to aid rather than a "hand-out." 
According to Vate, more risk sharing and risk transfer will 
alleviate the need for public aid.  Thus, his "Planet Re" concept 
is risk insurance in the interest of development, which restores 
capacity lost during a disaster. (For more information, please 
refer to http://www.institut-thomas-more.org/pdf/1en 
NoteITM1Vatev2Eng.pdf.) Vate distanced himself from controversial 
proposals for a global tax on capital transactions to finance a 
global poverty insurance scheme, but was not precise on where the 
funding would come from, or how such scheme would be managed. 
 
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Roundtable Discussion by Rome Experts 
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6.  Economists and rural finance experts from FAO, IFAD and WFP 
offered their views on current schemes from each of their 
agencies as follows: 
 
-- The director of FAO's commodities and trade division, an 
economist by training, covered vulnerability issues related to 
commodity shocks in least developed countries.  He noted that 
there is a form of self-insurance in developing countries, for 
example, investing in livestock or gold, but that there is also a 
high demad for harvest insurance.  For instance, coffee farmers 
in Tanzania are willing to pay up to 800 Tanzania shillings for a 
crop premium.  FAO is working on an idea for a "Global Commodity 
Insurance Facility" to develop a fund for low-income commodity 
deficit countries to purchase insurance contracts.  This is 
broadly based on the "Global Index Insurance Facility," which has 
recently received $100 million in pledges by the European Union 
and development banks. FAO is helping to provide technical 
backstopping on the Global Index Insurance Facility. 
 
-- A senior rural finance adviser from IFAD discussed micro- 
insurance and how it reinforces micro-finance.  IFAD is working 
with the world's top micro-finance institutions to extend micro- 
finance opportunities, such as providing savings and credit as 
well as insurance services, to the rural poor.  According to 
IFAD, when the rural poor people have access to credit, savings, 
insurance and basic financial services they can better manage 
their assets and generate income.  IFAD is currently conducting 
micro-insurance projects in Mexico and Morocco. 
 
-- A WFP food security and early warning adviser gave a brief 
overview on the WFP weather insurance project to be launched in 
Ethiopia.  The speaker, who was born in the countryside where the 
WFP project will focus, noted the need for such a venture where 
there are limited options.  He said that many Ethiopians have yet 
to recover from the devastating impact of the 1984-85 drought, 
which if it occurred today would cost the world $1.6 billion in 
aid. The WFP program aims to protect whatever development has 
been accomplished through conventional donor funding. 
Recognizing the importance of this scheme, the Government of 
Ethiopia is participating by providing rainfall data on which the 
insurance scheme will be based. 
 
7. Questions from the audience related to external financing 
(Vate clarified that his scheme would not be financed through 
international taxation but rather through private investment); 
and bridging the gap between micro-insurance and macro-insurance, 
(which would depend on the transmission mechanism, whether it be 
through a bank, a government entity, or international 
organization, such as WFP).  The Sudanese Ambassador inquired as 
to how poverty insurance could be applied to Sudan.  Vate 
responded that, without political will, it is difficult, and 
stated that big actors, including the Government of Sudan and 
international donors, can begin on a smaller scale by funding 
smaller, more specialized insurance schemes. 
 
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Closing Remarks Session 
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8.  U.S. Ambassador Tony Hall, UK Ambassador Matthew Wyatt, and 
French Ambassador Charles Millon provided closing remarks. 
Ambassador Hall thanked the conference planners and participants 
for providing a forum in which innovative ideas and tools to 
combat poverty and hunger could be discussed, but noted that many 
questions still remain on this issue, for example, how the poor 
can be kept in the loop on financing this scheme.  He highlighted 
the U.S. position that good governance is key to enabling a 
favorable climate for development, and noted that all governments 
 
 
have the singular responsibility to ensure the well being of 
their people.  Both Ambassadors Wyatt and Millon echoed the good 
governance remarks.  Wyatt called for more information on how 
poverty insurance will affect social protection schemes, while 
Millon stated that insurance can help push development forward. 
All thanked the experts for providing as simple an overview as 
possible on a technically complicated concept. 
 
Hall 
 
 
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 2005ROME02226 - Classification: UNCLASSIFIED