Policy for implementation of Index Based Weather Insurance revisited: the case of Nicaragua
International development organisations, through partnerships with local insurance companies, have been promoting weather index based insurance (WIBI) in developing countries. Due to lower operational costs, they expect shorter pay-off period, often overlooking high initial design costs. Experiences however show high post-pilot mortality of these programmes. Literatures report lack of insurance participation. We propose lack of push from insurance providers as an additional factor. To verify, cash flows of a Nicaraguan groundnut based WIBI and a comparable but hypothetical named peril insurance are simulated against 80 scenarios. Additionally, a test of stochastic dominance of their estimated Net Present Values show that WIBI take comparatively longer to pay-off yielding lower returns with considerable risk. WIBI, given its advantages is undoubtedly an efficient agricultural risk management tool. Therefore, to make it sustainable, long-term pilots and technical assistance is required until the product pays-off and yield profits for insurance providers.
|Date of creation:||23 Feb 2012|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.eaae.org|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hogarth, Robin M & Kunreuther, Howard, 1989. " Risk, Ambiguity, and Insurance," Journal of Risk and Uncertainty, Springer, vol. 2(1), pages 5-35, April.
- Banerjee, Chirantan & Berg, Ernst, 2011. "Efficiency Of Wind Indexed Typhoon Insurance For Rice," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114240, European Association of Agricultural Economists.
- 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.
- Martin Odening & Oliver Musshoff & Wei Xu, 2007. "Analysis of rainfall derivatives using daily precipitation models: opportunities and pitfalls," Agricultural Finance Review, Emerald Group Publishing, vol. 67(1), pages 135-156, May.
- Woodard, Joshua D. & Garcia, Philip, 2007. "Basis Risk and Weather Hedging Effectiveness," 101st Seminar, July 5-6, 2007, Berlin Germany 9254, European Association of Agricultural Economists.
- Jerry R. Skees, 2008. "Challenges for use of index-based weather insurance in lower income countries," Agricultural Finance Review, Emerald Group Publishing, vol. 68(1), pages 197-217, September.
When requesting a correction, please mention this item's handle: RePEc:ags:eaa123:122448. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If references are entirely missing, you can add them using this form.