Insurer Sompo Japan Introduces National Green Purchasing System for Agencies

Among these commitments, attention is being especially focused on how a company takes advantage of its core business activities to develop CSR financing, such as "weather index insurance," a type of insurance designed to respond to the effects of climate change. Knowledge about environmental education cultivated through collaboration between corporations and non-profit organizations is also considered important as a way to promote global environmental action throughout society.

The Development of Weather Index Insurance

In recent years, worldwide climate change has caused extreme weather events, such as huge hurricanes and extensive floods, resulting in an increased incidence of severe natural disasters. For Sompo Japan, ways to adapt to and mitigate climate change pose significant business
challenges.

Particularly with respect to adaptation measures, attention will be paid to how wisely the company can respond to the already emerging effects of climate change. Developing countries are especially vulnerable to climate-related disasters due to backward infrastructure development, and thus tend to suffer more severe damage.

Therefore, in order to find ways to adapt to climate change, Sompo Japan conducted research on new "risk finance" methods, in collaboration with the Japan Bank for International Cooperation (JBIC) and others. Based on the results of this research, the company launched a weather index insurance pilot project for farmers in northeast Thailand to pave the way for commercialization in 2010. Weather index insurance is an insurance product that enables customers to receive pre-determined payments when indices of temperature, wind velocity, rainfall, snowfall and so on reach certain levels. For example, when it does not rain enough to grow crops, this type of insurance will cover farmers' losses.

"In 2007, we launched a joint research group with JBIC on weather index insurance," says Kiyoshi Fukuwatari, Manager of Sompo's Corporate Social Responsibility Office, part of its Corporate Communications Department, explaining the product development background. "We conducted research on the situation in Asian countries and selected Thailand as the site for the pilot project because it has a certain level of economic stability and many farmers."

The pilot project was carried out in the province of Khon Kaen, and dealt with rice yields. Cooperating with Thailand's Bank for Agriculture and Agricultural Cooperatives (BAAC), the Sompo Japan project team explained the insurance scheme to local farmers, who were traditionally unfamiliar with insurance systems, and invited them to join the scheme. Since these farmers usually take out loans to cover rice farming costs from BAAC, the weather index insurance was offered only to farmers with
loans.

Satoshi Hirooka of the Alternative Solutions Section in Sompo's Commercial Risk Solutions Department visited the area twice, in June 2008 and August 2009, and said he received a good response from the farmers. "When we interviewed the farmers, they were grateful to have a way to avoid weather risks, and evaluated the scheme highly," he says.

As part of its preparations to commercialize of this product, the insurer now is setting up sources of reliable weather data from local meteorological weather stations while negotiating with the Thai government authorities' committee on insurance.

Written by Taeko Ohno, Japan for Sustainability