Weather Index Insurance to Benefit from New NASA Satellite

> Posted by Jeffrey Riecke, Communications Associate, CFI

On Thursday NASA and the Japan Aerospace Exploration Agency launched a new weather and climate satellite that generates a near-global view of precipitation, closing previous large observation gaps. This development has the potential to inform an array of important weather-related activities, including weather index insurance.

The satellite, known as the Global Precipitation Measurement (GPM) satellite, uses a radiometer and dual-frequency radar to measure the presence and even the intensity of rain, snow, and ice, to a time window of three hours, across a geographic range of 65 degrees north to 65 degrees south latitude. Data generated by the satellite will be publicly available to anyone around the world.

A Japanese H-IIA rocket launching the GPM satellite from the Tanegashima Space Center in Tanegashima, Japan.

NASA’s predecessor satellite was only able to detect rain, and not to varying intensities. It also covered a more limited geographic area of 35 degrees north to 35 degrees south. The new NASA satellite could prove an invaluable resource for weather-related initiatives like disaster response and relief.

Weather index insurance is well-positioned to benefit from the newly detailed precipitation data. Weather index insurance offers a payout to farmers in the event of extreme weather, such as drought or a hurricane. The financial support helps farmers sustain their families while their source of livelihood, their land, recovers. This safeguard also makes it less risky to take out loans to invest in the productivity of land. The payout is triggered by weather index readings that register as extreme weather. This mechanism yields low transaction costs – a necessity as it rarely is practical for insurance agents to travel to smallholder farmers and verify the weather and land conditions.

Available weather data has been a limiting factor for the scope and accuracy of weather index insurance. A few years ago, those with index insurance hit by Hurricane Sandy in the Caribbean were not able to receive payouts because the limited range of the NASA satellites in operation did not cover the impact zone. As the new satellite expands the data’s geographic reach, weather index insurance is also positioned to expand. With the new satellite, weather index insurance could expand beyond rain, too. Hail storms, for example, are currently a significant risk in countries like Malawi and Zambia, but the data has been lacking to support weather index insurance with hail coverage.

When we heard about this exciting development, we reached out to Véronique Faber, Executive Director of the Microinsurance Network, to see what she thought. “This data will be a game-changer, especially as NASA plans to give access to everyone in the world,” she said, adding, “Stakeholders involved in weather index insurance for small farm holders will watch this space closely!”

Along with these potential advantages, it’s important to consider a few factors that might constrain the satellite’s ability to support weather index insurance. Typically, insurance product pricing and design is calibrated using historical data on claims and damage. This will be lacking at first when the new satellite data comes on stream, and could limit its rapid use. There is also the potential for the satellite’s new techniques to not be as accurate as hoped across all regions. It’s still not uncommon for particular satellites to be more or less accurate for particular geographies. For instance, the previous NASA satellite was more accurate in the Caribbean and East Asia than it was in Africa.

*Some of this post’s content was generously provided by MicroEnsure.

Image credit: NASA/Bill Ingalls

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