Insurance against poverty? The 'new-generation' agricultural microinsurance schemes

Abstract

Insurance has often been proposed as a remedy for risk, which in turn is a major cause of poverty (World Development Report 2000/2001). However, the history of insurance schemes (especially crop insurance schemes) in developing countries is unpromising with relation to both financial sustainability and poverty reduction. Is it possible to do better? As part of the diversification of microfinance, some new schemes aim to make progress by way of cost-covering premiums, poverty targeting and a range of defences against moral hazard of which the best known is restricting the insurance to climatic hazards in lieu of a yield or income guarantee. We examine three of these schemes (BASIX Andhra Pradesh, India; CERUDEB Uganda; and the proposed WIA in Ethiopia) and, with respect to CERUDEB, describe the process of premium setting, the results of sensitivity analyses and the determination of the optimal 'excess' or deductible. Serious impact analysis is premature, but the portents for filling a gap in the market and reducing poverty without running losses look promising.