Instrument Description

Index insurance is an insurance instrument that pays out benefits on the basis of a predetermined metric (the index)—such as inches of rainfall—for loss of assets and investments.

Concessionality

While insurance can be a fully commercial instrument, it can often be prohibitively expensive if the risk it is intended to cover is perceived as too high too costly, or too difficult to diversify through a portfolio approach. To this end, premium support for policy holders and/or partial guarantees for insurers can be useful means of increasing the availability of these types of mechanisms.