For more than half a million farmers in rural India the age old fear of crops failing due to bad weather could soon be banished, thanks to an innovative insurance scheme that UN negotiators gathering in Bonn this week are considering as a central component of climate change adaptation measures in Africa, Asia and Latin America.

Following a successful trial last month, MicroEnsure, a company specialising in providing insurance to poor communities, plans to launch a scheme next year for up to 600,000 farmers in India's Kolhapur province allowing them to insure against their rice crops failing due to drought or heavy rains during the plants' flowering period.

Chief executive Richard Leftley said micro-insurance policies — so

-called because of their relatively low premiums — will be offered to farmers with loans from the local Kolhapur District Cooperative Bank.

The firm will then pay out to farmers when weather stations show crops are likely to have been damaged by rain or drought, making it possible for smallholders to support their families and continue loan repayments even when crops fail.

The scheme, which is receiving funding from the Bill and Melinda Gates Foundation, will be promoted using comic books designed to explain visually how insurance works to farmers who have previously had no access to insurance cover. It will also be supported by finance from the Indian government that will effectively halve the price of premiums to around 2.5% of the value of the loan.

Leftley is anticipating huge demand from farmers in the region. "We ran a pilot scheme last month for 5,000 farmers and it sold out in two days," he said, adding that after similarly successful trials in Malawi, Ethiopia and the Philippines the company was now looking to prove micro-insurance schemes could work on a large scale.

As well as insuring against crop failure, the scheme also helps farmers access larger loans to pay for seeds and equipment, Leftley said, citing previous trials that saw banks lend 15% to 40% more to farmers who have insurance.

MicroEnsure's plans come as delegates at this week's UN climate change talks in Bonn debate whether rich countries should provide financial support to the fledgling sector. The official negotiating text [pdf], which forms the basis of an international climate change deal that is expected to be finalised in Copenhagen later this year, includes proposals to support micro-insurance projects.

Dr Koko Warner, an insurance expert at the UN University, said a broad consensus of support was building around the idea ahead of the Bonn meeting with US negotiators showing support for the first time. "There has been a real shift in the US position," she said. "It has got behind micro-insurance as it perceives it as a good way of reducing and spreading climate risk."

Micro-insurance also presents a cost-effective means of promoting climate change adaptation measures, according to Thomas Loster, chairman of the Munich Re Foundation, a not-for-profit arm of the insurance giant. He predicted that as weather-based insurance schemes mature and larger insurance firms enter the market they will provide poor communities with education to help better protect themselves against the impact of droughts and weather-related disasters, such as hurricanes and flooding.

"The basic principle of insurance is that you offer lower premiums when risks are lower," he explained, predicting that micro-insurance providers would want to limit the number of claims they face by helping communities become more resilient to climate change.

Alan Doran, a microfinance expert and consultant to Oxfam, said he expected micro-insurance schemes to become an increasingly important component of development projects.

"These types of schemes allow people in poor communities to cushion themselves against shocks in a way that we take for granted," he said. "If the weather stations are put in place and the risks are spread effectively then it has the potential to deliver real benefits."