Index-based Agricultural Insurance Research Articles

The Regulation of Index-Based Agricultural Insurance Products as a Risk Management Tool for Small Holder Farmers in Cameroon

The regulation of index based agricultural insurance for small holder farmers in Cameroon are as a result of the risk they are exposed to like weather variability and related risks associated with their activities especially droughts, floods, pests and input costs and more importantly the limits of indemnity based agricultural insurance. Like any other poor and low income farmers with small land holdings their risk exposures can only be managed through good laws especially with the use of index insurance as a risk management tool. This article examines the CIMA Code as a regulatory instrument for agricultural insurance as far as small holder farmers are concerned. Book VII of the CIMA Code introduced microisurance in 2012 as a panacea to indemnity insurance which enabled the codification and development of index insurance by member states. The implementation of Index-based agricultural insurance faces considerable challenges that must be overcome to effectively service farmers in remote areas in a country like Cameroon. These challenges includes amongst others: regulatory insufficiency, limited historical rainfall and crop yield data, information on livestock mortality and limited infrastructures just to mention a few. It is recommended inter-alia that these aforementioned could be addressed through codification, infrastructural developments, inclusion of non-farming activities like banking and micro finance institutions amongst others.

Weather index-based agricultural insurance for flower farmers: Willingness to pay, sales, and profitability perspectives

Weather index-based agricultural insurance for flower farmers: Willingness to pay, sales, and profitability perspectives

The role of crop classification in detecting wheat yield variation for index-based agricultural insurance in arid and semiarid environments

The role of crop classification in detecting wheat yield variation for index-based agricultural insurance in arid and semiarid environments

Implementation of agricultural insurance for sustainable food crop in Mutiara Timur and Suka Makmur Sub Districts

The extreme climate has caused anomaly in rainfall, so there is the potential for floods and droughts to have a direct impact on the agricultural sector, particularly the decline in rice production. To overcome this, the government issued a policy in the form of an agricultural insurance program known as agricultural insurance to protect rice plants from the threat of crop failure. Aceh Province, which is one of the central provinces of lowland rice production in Indonesia, has implemented the agricultural insurance program since 2016, but it did not run smoothly due to several weaknesses of the program. Currently, agricultural insurance programs have developed rapidly, one of which is climate index-based agricultural insurance that can overcome the weaknesses of indemnity-based agricultural insurance. Based on the above background, researchers are interested in studying the Willingness To Join (WTJ) and Willingness To Pay (WTP) of farmers on climate index-based agricultural insurance. The analytical methods used are binary logistic regression analysis, Contingent Valuation Method (CVM), and Heckman Selection Models. The results showed that socio-economic factors namely farmer’s age, experience in rice farming, land area, and income from rice farming had a significant effect on WTJ and WTP agricultural insurance premiums with an average premium was Rp168,667 ha−1 per planting season. There are 2 things that the government needs to do to make the agricultural insurance program more successful. First, the application of cheaper insurance premiums and second, increasing farmers’ knowledge about the insurance scheme through more intensive socialization.

Financial Inclusion in the Global South: An Analysis of Index-Based Agricultural Insurance and Farmer Food Security in India

Index-based agricultural insurance (IBAI) is presented by several development organizations as a highly effective way of mitigating climate change related risks and improving farmer food security. However, critics doubt the effectiveness of the instrument and regard it as a new frontier for capital accumulation. Linking to this debate, this research uses a qualitative design to investigate how IBAI affects the food production and consumption of farmers in the Indian state of Karnataka. It finds that the proposed benefits of the instrument are overestimated. Most of the major issues reported by farmers cannot be addressed by insurance. Moreover, using the alternative concept of food sovereignty, the research suggests that several problems reported by interviewees, such as unstable market prices, unequal land distribution and missing irrigation require political action rather than financial inclusion.

Remote sensing in an index-based insurance design for hedging economic impacts on rice cultivation

Abstract. Rice production in Ecuador is steadily affected by extreme climatic events that make it difficult for farmers to cope with production risk, threatening rural livelihoods and food security in the country. Developing agricultural insurance is a policy option that has gained traction in the last decade. Index-based agricultural insurance has become a promising alternative that allows insurance companies to ascertain and quantify losses without verifying a catastrophic event in situ, lowering operative costs and easing implementation. But its development can be hindered by basis risk, which occurs when real losses in farms do not fit accurately with the selected index. Avoiding basis risk requires assessing the variability within the insurance application area and considering it for representative index selection. In this context, we have designed an index-based insurance (IBI) that uses a vegetation index (normalized difference vegetation index – NDVI) as an indicator of drought and flood impact on rice in the canton of Babahoyo (Ecuador). Babahoyo was divided in two agro-ecological homogeneous zones (AHZs) to account for variability, and two NDVI threshold values were defined to consider, first, the event impact on crops (physiological threshold) and, second, its impact on the gross margin (economic threshold). This design allows us to set up accurate insurance premiums and compensation that fit the particular conditions of each AHZ, reducing basis risk.

‘Latent’ surplus populations and colonial histories of drought, groundnuts, and finance in Senegal

Amidst growing concern about the displacement of rural populations exposed to climate change, new financial instruments are increasingly being presented as key tools for the management of climate risks. Index-based agricultural insurance (IBAI) is a particularly key example. Recent critical work has pointed to the deeply neoliberal character of IBAI and like interventions. However, the promotion of new financial instruments in response to crises of agrarian production has a much longer history in Africa and elsewhere. This article draws on Marx’s concept of ‘latent’ surplus populations to trace out and explain parallels between IBAI and colonial interventions in Senegal’s groundnut basin. Approaching the question in this way, the article highlights the long-run historical co-production and interdependence of the Senegalese state and a political ecology of groundnut production in which relations of indebtedness and the exposure to variable rainfall of a fragile relative surplus population has often been crucial to the mobilization of cheap labour for groundnut production. IBAI is thus positioned as part of a recurrent trajectory of emergency financial interventions aimed at smoothing out the contradictions implicit in this socio-ecological configuration.

Integrating gender into index-based agricultural insurance: a focus on South Africa

ABSTRACTIndex insurance is an agricultural risk management tool that can provide a safety net for smallholder farmers experiencing climate risk. While uptake and scale-out of index insurance may be slow among smallholders, we can learn from experiences that demonstrate where crop insurance can protect smallholders’ livelihoods from climate risk. Integrating gender into climate risk management is necessary to ensure that the benefits of index insurance are experienced by both men and women. A dedicated intention to integrate gender may be required. Taking South Africa as a case study, the potential for gender-sensitive index insurance scale-out among smallholders is investigated.

Index Insurance for Developing Country Agriculture: A Reassessment

With uninsured risk representing a major hurdle to investment, productivity growth, and poverty reduction in developing country smallholder agriculture, index-based agricultural insurance has offered the promise of overcoming the hurdles of traditional indemnity-based insurance for this context. In spite of extensive experimentation, take-up has been disappointingly low without large and sustained subsidies. We show that existing constraints on take-up can partially be overcome using revised contract designs, advanced technology for better measurement, improved marketing, and better policy support. However, because index insurance is likely to remain expensive in that context, we suggest that improved index insurance be combined with stress tolerant seed varieties and new risk-oriented savings and credit products that build on the complementarities between what can be offered by index insurance and these other instruments to cope with shocks and manage risk.

Designing index-based livestock insurance for managing snow disaster risk in Eastern Inner Mongolia, China

Index-based agricultural insurance is of particular importance for vast, less heterogeneous and sparsely populated regions. This paper has designed an index-based livestock insurance for managing snow disaster risk for the pastoral regions of Eastern Inner Mongolia, China. Based on detailed information from field surveys, the designed insurance plan targets extra feeding costs induced by snow cover rather than mortality. It employs percentage height of grass covered by snow as the trigger for insurance payments and calculates the aggregate number of days triggered between November 1st and April 30th as the index for calculating insurance payments. A comparison with existing commercial mortality insurance (CMI) based on certainty-equivalent analysis indicates that the designed snow-index insurance (SII) is superior in terms of potential users’ welfare, as it is aimed correctly at the major source of income risk. Even when the loading for administrative costs is included in the premium, the SII still brings welfare improvements for most regions of the study area.

Derivatives for Development? Small‐Farmer Vulnerability and the Financialization of Climate Risk Management

While agricultural production has always been a risky endeavour, it has become even more so in the current context of climatic change and increasing market uncertainty. Meanwhile, the rollback of state protections has rendered small‐scale farmers, especially marginalized peasant producers in the Global South, particularly vulnerable to these contemporary stressors. This essay critically evaluates the contemporary roll‐out of financial derivatives that purportedly aim to mitigate smallholder vulnerability. It gives particular attention to a novel type of derivative known as index‐based agricultural insurance (IBAI) that plays an increasingly prominent role in initiatives to ‘climate proof’ agriculture. The creation of IBAI markets has required significant work, including (1) technical interventions to debundle environmental risk from agricultural production and rebundle it in novel ways that support private financial capital and agricultural input suppliers, (2) extensive state support in the creation of risk markets, and (3) the construction of an accommodating ‘insurance culture’ among small‐scale producers. In addition to mitigating weather‐based risk, a primary objective of IBAI is to spur agricultural modernization. In promoting this agenda, IBAI initiatives may have the paradoxical effect of exposing smallholders to new risks while expanding their overall vulnerability to environmental and economic stressors.

Managing Risk with Insurance and Savings: Experimental Evidence for Male and Female Farm Managers in West Africa

While there is a fast-growing policy interest in offering financial products to help rural households manage risk, the literature is still scant as to which products are the most effective. In order to inform gender targeting of rural finance policy, this paper investigates which financial products best improve farmers’ productivity, resilience, and welfare, and whether benefits affect men and women equally. Using a randomized field experiment in Senegal and Burkina Faso, we compare male and female farmers who are offered index-based agricultural insurance with those who are offered a variety of savings instruments. We found that female farm managers were less likely to purchase agricultural insurance and more likely to invest in savings for emergencies, even when we controlled for access to informal insurance and differences in crop choice. We hypothesize that this difference results from the fact that although men and women are equally exposed to yield risk, women face additional sources of life cycle risk — particularly health risks associated with fertility and childcare — that men do not. In essence, the basis risk associated with agricultural insurance products is higher for women. Insurance was more effective than savings at increasing input spending and use. Those who purchased more insurance realized higher average yields and were better able to manage food insecurity and shocks. This suggests that gender differences in demand for financial products can have an impact on productivity, resilience, and welfare.

Is There Too Much Hype about Index-based Agricultural Insurance?

Individual crop insurance has been largely abandoned in developing countries and replaced by insurance pilots based on weather indices. These pilot schemes have encountered low demand. Research suggests that better-off farmers may already be insured via income diversification, their assets and social networks, and may achieve profit-maximising portfolios without formal insurance contracts. They would be interested in such contracts only if they reliably reduced their exposure to risk at lower costs than their self-insurance mechanisms. Conversely, poor farmers are not able to self-insure adequately, have to trade-off returns for reduced risk and could, therefore, benefit from a well-designed insurance. But they are cash/credit constrained and, therefore, cannot advance the money before sowing time to buy insurance that pays out only after the harvest. Index insurance, therefore, cannot be scaled up. Even if a few farmers purchase it, governments still will need to run relief programmes for the uninsured. Standard ways suggested to improve the index insurance, such as reducing basis risks, educating farmers and improving weather data, do not improve the ability of small farmers to purchase insurance and may not improve product design sufficiently to be competitive with self-insurance of the better-off farmers.

Weather Index Derivatives in Risk Transfer for Agricultural Natural Hazards

Abstract The article begins by briefly reviewing agricultural risk management strategies used by farm households and some of the unique problems associated with agricultural insurance. Especially, the experience of developed countries is highlighted to make the case for why such approaches cannot work well in lower-income countries. The article introduces innovations that use index-based insurance products, and gives a pricing model for weather index derivatives which is deduced with utility-based pricing, and then, the article reviews both the advantages and disadvantages of index-based agricultural insurance and its applicable scope.