The pilot provides the Ministry of Finance of Lao PDR with access to payouts triggered by early warning data indicating elevated drought risk before drought severely affects farming households and rural communities. Financing is activated when the Combined Drought Index, monitored by the Department of Meteorology and Hydrology and combining observation and forecast data, crosses a defined threshold.

Drought is the single largest disaster risk in Lao PDR, with approximately 1.2 million people exposed annually and average yearly losses estimated at US$672 million, equivalent to around 3.5 per cent of GDP. With forecasts pointing to a possible return of El Niño conditions in 2026–27, the need for anticipatory drought action has become more urgent than ever. Scientific evidence shows that El Niño significantly increases the likelihood of below-average rainfall and drought across mainland Southeast Asia, including Lao PDR.

By linking early warning systems with pre-arranged financing, the pilot enables the Government to act before drought impacts intensify, helping to protect agriculture, water resources and rural livelihoods when action matters most.

Under the pilot, payouts will support government-led anticipatory measures, including the dissemination of early warning messages through loudspeakers. Community leaders, such as deputy village heads and volunteers, will receive training jointly led by the Department of Meteorology and Hydrology and Lao National Radio. Additional training on drought-resistant cropping techniques, water management and irrigation practices will be supported by the National Agriculture and Forestry Research Institute.

“Anticipatory action aims to reduce harm before drought becomes a full-scale crisis for communities,” said Benedikt Signer, Chief Executive Officer of the SEADRIF Insurance Company. “This pilot tests how anticipatory insurance can help governments act earlier by providing pre-arranged financing at the moment it can make the greatest difference. The lessons from Lao PDR will inform SEADRIF’s regional approach to drought risk financing.”

Deliberately structured as a limited-scale sandbox initiative, the pilot’s primary purpose is to validate the institutional mechanisms required for anticipatory financing, including inter-ministerial coordination, claims and payout procedures, and government fund-flow systems.

Payouts will be utilised in accordance with standard operating procedures jointly developed by FAO with the Ministry of Finance, Ministry of Agriculture and Environment, Ministry of Labour and Social Welfare, and the Department of Meteorology and Hydrology.

“This pilot provides a pathway to strengthen Lao PDR’s preparedness for drought and the protection of rural communities,” said Thevarack Phonekeo, Deputy Director-General of the Department of Planning and Cooperation under the Ministry of Agriculture and Environment. “Through this partnership with SEADRIF and FAO, we are working to ensure earlier and more predictable support for people affected by climate-related risks.”

The policy is structured as a drought extension to Lao PDR’s SEADRIF multi-peril parametric sovereign insurance policy launched in 2025, which delivered a US$2 million payout in September 2025 following the cumulative impacts of Tropical Cyclones Wutip and Wipha.

“Rural communities are on the frontline of climate change, with drought increasingly affecting agriculture and food security,” said Kyung-Mee Kim, FAO Representative to Lao PDR. “This pilot is an important step towards ensuring support reaches communities earlier, when action can still reduce losses and protect livelihoods.”

A related feasibility study under the same GCF Readiness Project will assess the requirements for scaling up a parametric anticipatory drought insurance product, including refined triggers, actuarial pricing, payout channels linked to social protection systems, and engagement with commercial reinsurers.

As the first sovereign anticipatory drought insurance instrument in Southeast Asia, the pilot advances SEADRIF’s broader strategy to strengthen agricultural risk financing across the region. This complements the Regional Agricultural Insurance and Sustainable Economies (RAISE) facility, which is developing agricultural insurance infrastructure to expand fit-for-purpose agricultural markets across ASEAN.

KPL