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Challenges for use of index-based weather insurance in lower income countries

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  • Jerry R. Skees
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    Abstract

    This article offers some perspective on the progress and challenges of managing catastrophic weather risk in lower income countries through the use of index insurance. Innovations in insurance for natural disaster risk are critically important to help the rural poor improve their lives and to contribute to the overall economic growth in lower income countries. By reviewing lessons learned from various index insurance projects, several conclusions are made about how best to approach weather risk management to benefit the livelihoods of the rural poor. It is important to recognize the limitations of index insurance and that it is not a substitute for crop insurance. However, using index insurance to address catastrophic risk can serve as the foundation for the development of broader financial services by removing one of the major constraints to market development. This in turn can offer households more effective strategies for consumption smoothing in the face of different sources and magnitudes of risk.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Agricultural Finance Review.

    Volume (Year): 68 (2008)
    Issue (Month): 1 (September)
    Pages: 197-217

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    Handle: RePEc:eme:afrpps:v:68:y:2008:i:1:p:197-217

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    Related research

    Keywords: Ex ante risk management; Index insurance; Risk transfer; Rural development; Weather risk;

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    Cited by:
    1. Leif Erec Heimfarth & Oliver Musshoff, 2011. "Weather index-based insurances for farmers in the North China Plain: An analysis of risk reduction potential and basis risk," Agricultural Finance Review, Emerald Group Publishing, vol. 71(2), pages 218-239, July.
    2. Birgit Müller & Martin Quaas & Karin Frank & Stefan Baumgärtner, 2009. "Pitfalls and potential of institutional change: Rain-index insurance and the sustainability of rangeland management," Working Paper Series in Economics 149, University of Lüneburg, Institute of Economics.
    3. Nicholas D. Paulson & Chad E. Hart & Dermot J. Hayes, 2010. "A spatial Bayesian approach to weather derivatives," Agricultural Finance Review, Emerald Group Publishing, vol. 70(1), pages 79-96, May.
    4. Lybbert, Travis J. & Sumner, Daniel A., 2012. "Agricultural technologies for climate change in developing countries: Policy options for innovation and technology diffusion," Food Policy, Elsevier, vol. 37(1), pages 114-123.
    5. Muamba, Francis M. & Ulimwengu, John M., 2010. "Optimal rainfall insurance contracts for maize producers in Ghana’s Northern Region," IFPRI discussion papers 1016, International Food Policy Research Institute (IFPRI).
    6. Banerjee, Chirantan & Berg, Ernst, 2012. "Policy for implementation of Index Based Weather Insurance revisited: the case of Nicaragua," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122448, European Association of Agricultural Economists.
    7. Mogues, Tewodaj & Yu, Bingxin & Fan, Shenggen & Mcbride, Linden, 2012. "The impacts of public investment in and for agriculture: Synthesis of the existing evidence," IFPRI discussion papers 1217, International Food Policy Research Institute (IFPRI).
    8. Collier, Benjamin & Skees, Jerry R. & Miranda, Mario J., 2012. "On the Efficient Management of Natural Disaster Risk Using Credit and Index Insurance," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124663, Agricultural and Applied Economics Association.
    9. Rong Kong & Calum G. Turvey & Guangwen He & Jiujie Ma & Patrick Meagher, 2011. "Factors influencing Shaanxi and Gansu farmers' willingness to purchase weather insurance," China Agricultural Economic Review, Emerald Group Publishing, vol. 3(4), pages 423-440, November.

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