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Innovations in Index Insurance for the Poor in Lower Income Countries

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  • Skees, Jerry R.

Abstract

This article focuses on innovation in weather insurance designed to fit the special circum-stances of the poor in lower income countries where rural and agricultural financial markets are largely underdeveloped. Index insurance is an innovation that circumvents many of the fundamental problems that hamper the development of insurance for weather risks in lower in-come countries. With index insurance, payments are made based upon an objective and inde-pendent index that serves as a proxy for significant losses to crops, livestock, or other prop-erty. For example, the index can be based upon extreme rainfall measures that create either drought or flooding. Weather stations or even satellite imagery coupled with computer models can be used to create reliable “indexes†as the basis of payments. This article reviews this innovation by providing the background for its development and the motivation for using the innovation for the poor.

Suggested Citation

  • Skees, Jerry R., 2008. "Innovations in Index Insurance for the Poor in Lower Income Countries," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 37(1), April.
  • Handle: RePEc:ags:arerjl:44733
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    File URL: http://purl.umn.edu/44733
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    References listed on IDEAS

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    1. Rosenzweig, Mark R & Binswanger, Hans P, 1993. "Wealth, Weather Risk and the Composition and Profitability of Agricultural Investments," Economic Journal, Royal Economic Society, vol. 103(416), pages 56-78, January.
    2. Dercon, Stefan, 1996. "Risk, Crop Choice, and Savings: Evidence from Tanzania," Economic Development and Cultural Change, University of Chicago Press, vol. 44(3), pages 485-513, April.
    3. Jerry R. Skees, 1999. "Opportunities for Improved Efficiency in Risk Sharing Using Capital Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(5), pages 1228-1233.
    4. Carter, Michael R. & Little, Peter D. & Mogues, Tewodaj & Negatu, Workneh, 2007. "Poverty Traps and Natural Disasters in Ethiopia and Honduras," World Development, Elsevier, vol. 35(5), pages 835-856, May.
    5. Barnett, Barry J. & Barrett, Christopher B. & Skees, Jerry R., 2008. "Poverty Traps and Index-Based Risk Transfer Products," World Development, Elsevier, vol. 36(10), pages 1766-1785, October.
    6. Barrett, Christopher B. & McPeak, John G., 2003. "Poverty Traps and Safety Nets," Working Papers 127808, Cornell University, Department of Applied Economics and Management.
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    Citations

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    Cited by:

    1. Awel Y. & Azomahou T.T., 2015. "Risk preference or financial literacy? Behavioural experiment on index insurance demand," MERIT Working Papers 005, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    2. Takahashi, Kazushi & Ikegami, Munenobu & Sheahan, Megan & Barrett, Christopher B., 2016. "Experimental Evidence on the Drivers of Index-Based Livestock Insurance Demand in Southern Ethiopia," World Development, Elsevier, vol. 78(C), pages 324-340.
    3. Biener, Christian, 2013. "Pricing in Microinsurance Markets," World Development, Elsevier, vol. 41(C), pages 132-144.
    4. repec:oup:rfinst:v:30:y:2017:i:6:p:1935-1970. is not listed on IDEAS
    5. Achtnicht, Martin & Osberghaus, Daniel, 2016. "The demand for index-based flood insurance in a high-income country," ZEW Discussion Papers 16-051, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    6. Turvey, Calum G. & Kong, Rong & Belltawn, Burgen, 2009. "Weather Risk and the Viability of Weather Insurance In Western China," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49362, Agricultural and Applied Economics Association.
    7. Pelka, Niels & Weber, Ron & Musshoff, Oliver, 2015. "Does weather matter? How rainfall shocks affect credit risk in agricultural micro-finance," 2015 Conference, August 9-14, 2015, Milan, Italy 212617, International Association of Agricultural Economists.
    8. Takahashi, Kazushi & Ikegami, Munenobu & Sheahan, Megan & Barrett, Christopher B., 2014. "Quasi-experimental evidence on the drivers of index-based livestock insurance demand in Southern Ethiopia," IDE Discussion Papers 480, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    9. Hill, Ruth Vargas & Kumar, Neha & Magnan, Nicholas & Makhija, Simrin & de Nicola, Francesca & Spielman, David J. & Ward, Patrick S., 2017. "Insuring against droughts: Evidence on agricultural intensification and index insurance demand from a randomized evaluation in rural Bangladesh," IFPRI discussion papers 1630, International Food Policy Research Institute (IFPRI).
    10. Kellner, Ulla & Musshoff, Oliver, 2011. "Precipitation or water capacity indices? An analysis of the benefits of alternative underlyings for index insurance," Agricultural Systems, Elsevier, vol. 104(8), pages 645-653, October.
    11. Ward, Patrick S. & Spielman, David J. & Ortega, David L. & Kumar, Neha & Minocha, Sumedha, 2015. "Demand for Complementary Financial and Technological Tools for Managing Drought Risk: Evidence from Rice Farmers in Bangladesh," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 204882, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
    12. Shawn Cole & Xavier Giné & James Vickery, 2017. "How Does Risk Management Influence Production Decisions? Evidence from a Field Experiment," Review of Financial Studies, Society for Financial Studies, pages 1935-1970.
    13. Ward, Patrick S. & Spielman, David J. & Ortega, David L., 2015. "Demand for Complementary Financial and Technological Tools for Managing Drought Risk," 2015 Conference, August 9-14, 2015, Milan, Italy 211909, International Association of Agricultural Economists.
    14. Ward, Patrick S. & Spielman, David J. & Ortega, David L. & Kumar, Neha & Minocha, Sumedha, 2015. "Demand for complementary financial and technological tools for managing drought risk:," IFPRI discussion papers 1430, International Food Policy Research Institute (IFPRI).

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