The need for weather index insurance: What do farmers really want?

Published on

May 13, 2016

ATAI's latest policy bulletin, Making It Rain, reviews 10 randomized evaluations of weather index insurance. The study shed light on the barriers around uptake and usability for weather index insurance. Their findings are consistent with the market trends we are witnessing as well as our own broader call to action in this space. 

Weather-indexed insurance is a potential solution to enhance smallholder resilience in the face of severe weather such as the droughts and flooding sweeping parts of Africa now.  It can also complement production loan products by safeguarding a farmer’s ability to repay if irregular weather patterns destroy the harvest.  However, only 10% of smallholders are covered by any form of agriculture insurance, mostly government schemes, and only 6% of such farmers in Sub-Saharan Africa (see our study, Inflection Point).

Make It Rain, a recent policy bulletin published by Agricultural Technology Adoption Initiative (ATAI) reviews 10 randomized evaluations of different weather-indexed insurance in hopes of increasing customer uptake and usability and identifying what works and what doesn’t. ATAI is a research collaboration between the CEGA at UC Berkeley and J-PAL at MIT. The organization has funded over 40 randomized evaluations in sub-Saharan Africa and South Asia focusing on strategies to increase technology adoption by the poorest farmers.

Make it Rain provides very strong evidence that agricultural insurance can be impactful. However, uptake and usage is key to maximizing impact.

The study found that farmers are not typically purchasing insurance at current market prices. Therefore, subsidies and partnerships, improved financial literacy training, and smart design are critical for raising demand.

These findings are consistent with our own broader call to action in this space and trends we’re seeing in the market. For example, we recently cited the progressive partnership model developed by ACRE Africa that reduces premiums by having value chain actors (e.g. input providers) distribute and pre-finance products that are underwritten by insurers. The distributors bear the cost of marketing and collecting payments from smallholders, lowering overall cost to serve and increasing reach. This model also addresses some of the behavioral challenges to insurance uptake.” Making it Rain covers ACRE’s model using the example of insuring dairy cattle through milk cooperatives, however, the study notes that this model has not yet been rigorously evaluated.

We’re especially excited that one of the recent winners from the first Fund for Rural Prosperity (FRP) Scaling Competition, APA Insurance, is partnering with ACRE to scale agricultural insurance across Kenya.  APA’s minimum target is to reach 200K crop farmers. Their aspirations and what they have committed to in their indicators with FRP is ~500K by 2020. If they are successful in reaching their goal, this one deployment would represent a 30% increase over the number of farmers covered continent wide today! With increased threats from climate change on the rise, getting this product right – i.e. providing what farmers want and can afford - has never been more important.

Watch this video, Digging for Answers, for a brief overview of Make It Rain study.

For more information on the emerging evidence base from rigorous studies on weather index insurance read the full Make It Rain policy bulletin.


About the Author(s)

Producer of highlighted study

Agricultural Technology Adoption Initiative (ATAI) develops and rigorously tests programs that improve the adoption and profitable use of agricultural technology by small-scale farmers in South Asia and Sub-Saharan Africa. The long-term objective of ATAI is to ensure that the poor derive greater benefit from existing and new technologies.

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