The Ethiopia Drought Insurance Pilot Project of the World Food Program and the World Bank of the United Nations has shown that
- it is feasible to use market mechanisms to finance drought risk in Ethiopia. As part of the pilot, WFP obtained insurance through a contract with AXA Re, a Paris-based reinsurer using a sophisticated index based on Ethiopia’s historical rainfall and agricultural output.
- it is possible to develop objective, timely, and accurate indicators for triggering drought assistance. The Ethiopian agricultural drought index referred to above shows an 80% correlation with the total number of historical food-aid beneficiaries. This suggests that such an index can be used as a relatively good proxy of actual aggregate needs in case of drought. Field visits have indicated that the index has so far correctly captured events on the ground. Moreover, the index is updated on a 10-day basis, which greatly improves the timeliness of information.
Based on this program, the Government of Ethiopia has created an implementation rulebook for cash transfers for up to 316,000 at-risk beneficiaries in case of catastrophic drought. Identified communities are in the process of elaborating community-based plans that will allow them to implement programmes swiftly once early assistance has been triggered.
With the World Food Program HSS develops a drought event index on a geographic basis.