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Designing Weather Insurance Contracts for Farmers in Malawi, Tanzania, and Kenya

Published by:
Publication date
Number of Pages
Type of Publication:
Focus Region:
Sub-Saharan Africa
Focus Topic:
Climate / Weather / Environment
Type of Risk:
Weather & Climate related
Type of Risk Managment Option:
Risk transfer
D.E. Osgood, M. McLaurin, M. Carriguiry, A. Mishra, F. Fiondella, J. Hansen, N. Peterson, N. Ward
World Bank

While traditional insurance insures against crop failure, index insurance insures for a specific event or risk, such as rainfall deficits. Index insurance addresses two problems associated with traditional crop insurance: moral hazard (incentives for a farmer to let a crop die in order to get an insurance payout) and adverse selection (in which insurance is priced based on the risks of the entire population but only the most vulnerable farmers purchase insurance). However, index insurance only provides partial protection and is therefore only one part of a complete risk management package. It is critical that the client have a comprehensive understanding of exactly what risks are covered (and what risks are not covered) by the index product so that clients can effectively use the insurance as a part of their risk management system. Products must be transparent and completely understandable to the client or they will not be able to play their proper role. This team designed and evaluated contracts for Malawi, Kenya and Tanzania. Following the project specification, an in-depth analysis has been developed, such as process based crop simulations and quantitative analysis of historical data, for the Malawi case study.