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UKAID Department for International Development (R4D) 2010

The effectiveness of index-based micro-insurance in helping smallholders manage weather-related risks.

Micro-insurance Weather Risks

UKAID Department for International Development (R4D)

Titre : The effectiveness of index-based micro-insurance in helping smallholders manage weather-related risks

Region : Global

Projet de recherche pour le Développement :

DFID Programme : Systematic Reviews Programme

Organismes de mise en œuvre Harvard Business School

Durée : 01-05-2010 / 25-02-2011

Objectifs
This review will examine the effectiveness of weather insurance and area-yield based crop insurance in helping small holders manage weather-related risk in low and middle-income countries. It will primarily attempt to answer the following questions : 1. Where index-insurance products are available, do small-scale farmers take them up and, if not, what barriers exist ? 2. What factors affect the decision to purchase insurance ? 3. What effect, if any, does holding insurance have on economic behaviour, specifically on investment decisions and well-being ?

Descriptif
The risk of unfavourable weather conditions is the single most important risk faced by hundreds of millions of poor rural households around the world. Governments have implemented a range of programs to address these risks, most notably crop insurance programs and disaster relief aid. Programs which tie payments to individual farmer’s experience may suffer from two serious problems : moral hazard, whereby farmers may not exert as much effort to avoid risk or its consequences ; and adverse selection, whereby farmers with higher risk are more likely to take up such products. Contracting innovations have de-linked indemnification from individual production by basing insurance against losses arising from poor weather on an observable index (e.g. local rainfall or aggregate local crop yields) which is not directly linked to individual production. Such ’index-based’ micro-insurance products promise to offer a financially sustainable mechanism to reduce the risk faced by agricultural households. While there are some examples of success, by and large farmers have been reluctant to hedge substantial amounts of risk with these instruments. It is therefore of central importance to understand the determinants of demand for these products, and quantify their ability to affect household’s economic decisions and improve well-being. This review will synthesize the emerging body of evidence surrounding two specific types of index-based insurance : (1) weather insurance and (2) area-yield based crop insurance. The review will concentrate on the various issues associated with these forms of insurance, provide the best synthesis possible using existing evidence, and suggest priorities for future research.

Total Cost to DFID : £29,545

Présentation : UKAID

Page publiée le 27 septembre 2016, mise à jour le 10 novembre 2017