Economist.com -- Famine insurance

Economist.com -- Famine insurance:

"The (World Food Program) WFP could buy an insurance policy that paid out when, say, the rainfall in Ethiopia was below a certain level. Or it could issue 'catastrophe bonds'. In years of good or mediocre rainfall, the WFP would pay interest, out of its income from donors, but when drought came, bondholders would lose their principal. Should disaster strike, the WFP would have ready cash. The WFP thinks its ideas would be cost-effective, though you might think investors would demand a stiff return for what looks like a high risk of losing money. Big reinsurance firms in rich countries may be tempted because they currently have very little exposure to the weather in the southern hemisphere, and it is always wise to diversify one's portfolio. Richard Wilcox, the man at the WFP assessing the scheme's feasibility, says he thinks it could be up and running by 2007."

I recall that USAID created a crop insurance/reinsurance program for Central American nations (in the 1980's I think.) It would be interesting to know how that worked out and how it compares with the WFP proposal.