AXA Re writes first humanitarian disaster insurance policy

The United Nations World Food Program (WFP) has taken out the first humanitarianism insurance policy with reinsurer AXA Re.AXA Re will provide contingency funding of up to US$7 million of insurance coverage in case of extreme drought that may occur in Ethiopia during its 2006 growing season from March to October. This is the first time an insurance policy has been written to specifically cover humanitarian disasters. The WFP says the policy is “the first step in a process leading towards ex-ante risk management in developing countries.”James Morris, WFP’s director, says that the policy will give the WFP a way to insure against drought and other disasters that may otherwise result in destitution for millions of Ethiopians. Morris adds that drought is currently destroying cattle and crops which is costing millions of Ethiopians their life savings.The policy states that payments will be triggered if precipitation levels indicate the likelihood of widespread crop failure. The policy is based on rainfall data from this year’s agricultural season. Hans-Peter Gerhardt, chief executive of AXA Re, says that this policy represents the first time an insurance cover transferring risk to financial player has been used to protect people against the consequence of extreme drought.