Malawi drought insurance payout evaluation report

About the Malawi drought insurance payout implementation

In January 2024 Tearfund started a four-year pilot programme in Malawi, Ethiopia, Pakistan and Nepal, with an initial 21-month phase 1 to set up drought insurance with agreed anticipatory action plans per country. The policy, held by Tearfund, was initially designed to provide financial resources for anticipatory humanitarian response in the event of extreme weather, particularly drought. The goal of this project was to protect people from extreme climate events, reducing the potential for people at risk from drought to fall into food insecurity and resort to extreme coping measures to survive. To achieve this, Tearfund implemented a drought insurance intervention in Balaka District using the Water Balance Index (WBI), a risk model provided by Global Parametrics. The WBI uses satellite data to track soil moisture levels over time. If the WBI level drops below a predetermined threshold during the planting or growing season, an agreed payout is automatically triggered to Tearfund as the policy holder. This system enables those impacted by droughts, particularly a group of people defined in the anticipatory action plans (in this case smallholder farmers) to receive fast support without the need for field visits to verify losses. The insurance aimed to support farmers to take proactive measures to protect their crops, families, and livelihoods during challenging seasons and hopefully to recover more quickly.

The long-term goal of the project was: ‘Drought impact on protected households in Nepal, Malawi, Pakistan and Ethiopia is reduced through early, anticipatory actions as a result of effective forecasting coupled with timely insurance payouts.’ 

To do this, Tearfund needed three things: 

1. A risk transfer derivative, which functions like a parametric insurance policy, developed with agreed pricing, drought severity and payout triggers.
2. A risk index and insurance policy monitoring system developed (with Tearfund and partner staff trained on how to understand it). 
3. Country drought preparedness plans with anticipatory actions developed (also known as anticipatory action plans).

The risk index used is Global Parametrics’ Water Balance Index (WBI). This takes global satellite data (rainfall, temperature, wind speed and direction and other measurements) and correlates it with local people’s experience of drought – which year was drought worst, what was affected, what they did to cope and so on – gathered through a detailed survey.  This innovative parametric product leverages satellite data to determine the availability of water for crops.

The WBI infers soil moisture, and when the level of soil moisture falls below a pre-agreed threshold in a defined timeframe for each location, the payout is triggered without the need for loss estimations. This intends to provide fast, transparent and reliable financial relief for farmers who would otherwise see their yields at risk, threatening communities with extreme hunger. The payout helps farmers proactively take measures that improve food security for their communities.

In this project, each country had a different risk period, corresponding to the cropping season of the main food security crop. For Malawi and Nepal this started on 1 November and ran to the end of March; for Ethiopia it ran from 1 March to the end June; and for Pakistan from 15 March to 10 August. The insurance policy was only active during these risk periods. 

In late February 2025, the drought policy triggered in Malawi, releasing an immediate payout of $100,000 to Tearfund globally. Most of this was transferred either to the Tearfund Malawi country office or to Eagles, our Malawi-based implementing partner, with the remainder covering legitimate global indirect costs. The funds were used by Eagles to provide horticultural seeds to farmers, as well as farmer training in good agronomic practices, in partnership with the Malawi government extension workers.

Objectives of the evaluation

The aim of this evaluation was to assess and evaluate the effectiveness, efficiency, impact, and value for money of Malawi's first-ever anticipatory insurance payout mechanism, held globally by Tearfund. The payout enabled Tearfund in Malawi and its partner Eagles to support communities affected by drought through various forms of assistance, including the provision of drought-tolerant vegetable seeds and sweet potato vines. Specifically, it sought to:

1. Evaluate the effectiveness of the intervention in reducing drought-related hardship and enhancing resilience.
2. Assess the timeliness and efficiency of the response process and its delivery.
3. Generate evidence about the scalability and replicability of the intervention.
4. Identify the best practices and lessons learned for future payouts.