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Investing in resilience: microinsurance and frontline communities

Insurance products are helping farmers and vulnerable workers overcome shocks to their livelihood while building resilience against climate change.

A tornado rages over a landscape - storm over a grain field

Building climate resilience in frontline communities

In 2022, as La Niña brought downpour after downpour to coffee-growing regions of Colombia, small-scale coffee farmers no doubt feared for their crops. How bad would the harvest be? How would they survive financially?

But over six thousand farmers who grew coffee beans for Nespresso had an insurance policy that eased the financial stress usually associated with flooding. They knew that, if the rainfall exceeded a certain level, they would quickly receive an insurance payout. Between them, the payments totalled US$3 million totaled – almost US$500 per farmer.

The payouts are possible due to Blue Marble, a collaborative venture run by MMC and a consortium of insurance companies, launched in 2015 to promote the use of parametric insurance solutions for remote and low-income communities.

For farmers whose labor earns them just a few dollars a day, those payouts made a serious difference. Not only could they feed their families, but they could also use some of the money to build their resilience against future extreme weather events.

Innovation to close the insurance gap

Less than 20% of smallholder farmers worldwide have any kind of insurance coverage. Traditionally, insurance for farmers covers damage to crops. If a farmer wants to make a claim, the insurance company has to send out an expert to assess the damage.

Parametric insurance is simpler. Payouts under parametric policies are triggered when an event exceeds an agreed index — for example more (or less) than x mm of rain in a given period, winds exceeding an agreed strength, or temperatures above a certain point for an agreed period — in a given area. The data must be provided by an independent index; when the threshold is breached, the payments are made automatically.

For micro insurance in particular, the implications of this model are significant. It means nobody has to physically visit a site to assess crop damage, reducing the cost of administration and the speed of settlement. Also, the fact that the loss trigger is an independent index, there is no scope for costly disputes over claims.

While the concept is simple, the application in specific instances is more complex. When beginning work in a new region, organizations like Blue Marble collaborate closely with stakeholders to understand the nature of the risks they face. For example, at what times of the growing season is extreme weather most harmful? What level of rainfall or drought starts to affect the crops?

Blue Marble then uses its proprietary software models to design a bespoke insurance product for communities in that location. The payouts are typically graduated: For example, the worse the weather gets, the greater the payout the farmer receives.

Collaboration is key

Blue Marble works with partners, like Nespresso in Colombia or the World Food Programme in Zimbabwe, to reach new communities - In both cases, Blue Marble engagement has expanded to cover multiple other countries across continents.

It’s important to note that many of these smallholder farmer communities have never before been offered insurance or had any need to consider how it works. Partnering with organizations they already know and trust can be beneficial, especially when it comes to explaining and vouching for the concept.

Partners can also offer expertise in how to invest insurance payouts into sustainable and regenerative agriculture techniques that can help the claimant to adapt to the changing climate. While insurance payouts support the resilience of smallholder communities in the short term when facing bad harvests, the longer-term goal must be to improve the resilience of the food production system itself.

Beyond agriculture

While agriculture has a clear application for weather-based parametric insurance models, Blue Marble has developed insurance products for other underserved communities as well.

In 2023, the consortium launched a pilot project in partnership with the Self-Employed Women’s Association of India, which represents 2.5 million women who make a living, for example, as waste pickers, street vendors, or salt pan workers.

When summer brings extreme heat, these women risk their health by going out to work, in order to avoid losing out on income. The pilot project, in which over 21,000 women in Gujarat participated, offers payouts of around US$3 per day to the women – enough to compensate for loss of income – when heat reaches dangerous levels.

The payouts are designed to encourage women to seek shelter during the hottest days, and to explore ways to make their work environments safer in future. With funding from another partner, Arsht-Rock, these women are being offered tools and resources such as shade tents, clean water and coolers.

Building long-term resilience will only become more important as the effects of climate change play out, and increasingly, the insurance community is taking tangible action that delivers real impact to livelihoods in frontline communities.

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