Nepal’s agriculture sector, a critical source of livelihood for millions, faces persistent threats from natural disasters due to the country’s diverse topography, climatic conditions, and geological vulnerability. Paddy a major crop cultivated by many is one of the crops prone to damage by flood. Every year fluvial flood poses significant risk to farming communities, with devastating impacts on crop yields, food security, and economic stability. To address these challenges, and to enhance the resilience capacity of the vulnerable household the InsuResilience Solutions Fund (ISF) co-funded the development and implementation of Nepal’s first index-based flood insurance (IBFI) product.
As parametric insurance product, this initiative introduced a data-driven insurance mechanism designed to provide faster and more reliable financial relief to affected farmers with hassle free claim services. So far, key milestones have been achieved, including flood risk modelling, regulatory approval, and the first launch of product for monsoon coverage for the year 2022. In the first year of product rollout when the trigger was met during the monsoon season, claim settlement was conducted in speedy and hassle-free manner, which further made farmers more confident about the product as compensation amount helped farmers meet their emergency purposes. The product enrolment has been continued and has grown to 46 Cooperatives as group policy holders in the subsequent Years (2023, 2024) with more beneficiary farmers being enrolled enabling access of the vulnerable household to risk transfer mechanism.
Despite Nepal’s existing 80% government subsidy in premium for agricultural insurance, this support is currently unavailable for new products or pilot initiatives like the IBFI. To bridge this gap, ISF is now extending its support through premium subsidies in collaboration with Shikhar Insurance Company Limited. This targeted assistance aims to make the insurance product more affordable for low-income, marginalised farmers in flood-prone areas until government subsidies become accessible. With the help of digital platform of Shikhar Insurance, the enrolment process is now in progress for 2025 monsoon coverage. The digital platform aims to simplify and digitize the process of enrolment, registration, documentation, and payout of insurance products, as once the insurance process is easy, simple and reliable communities are more attracted towards the insurance service.
The overall objective of the IBFI is to develop a risk transfer mechanism for climate vulnerable smallholder farmers and marginalized people in Western Nepal. By ensuring continued access to risk protection, this initiative plays a crucial role in enhancing financial security, which will have ripple effects in achieving food security, economic stability and strengthen climate resilience of Nepal’s most vulnerable farming communities.
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GRMA hosted by ISF
