Index Insurance & Financial Instrumentsfrancesco/IRI_REVIEW_presentations/McCar… · Horn of...
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Index Insurance & Financial InstrumentsImproving the Science and Design behind
Weather Index Insurance
Geoff McCarney & Dan Osgood
IRI ReviewJune 24th, 2013
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Affiliations: IRI & Columbia University
Ph.D. Candidate in Sustainable DevelopmentColumbia University in the City of New York:
I Interdisciplinary ResearchI Specializations:
I Environmental & Resource EconomicsI Applied Climate Science & Atmospheric Dynamics
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Climate Science ApplicationsRainfall Estimates for Remote Regions
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Climate Risk for Poor Farmers in Developing Countries
The risk presented by frequent drought can prevent poorfarmers from investing to improve their livelihoods
I Farmers in many developing countriesface the threat of drought 1 in 5 years.
I Need for strategies to reduce risk tohelp unlock productivity in good years.
I Need to get the science and design behindweather index insurance right:
I To give payouts when neededI To ensure products are sustainableI To enable farmers to improve livelihoods
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Climate Risk for Poor Farmers in Developing Countries
The risk presented by frequent drought can prevent poorfarmers from investing to improve their livelihoods
I Farmers in many developing countriesface the threat of drought 1 in 5 years.
I Need for strategies to reduce risk tohelp unlock productivity in good years.
I Need to get the science and design behindweather index insurance right:
I To give payouts when neededI To ensure products are sustainableI To enable farmers to improve livelihoods
![Page 6: Index Insurance & Financial Instrumentsfrancesco/IRI_REVIEW_presentations/McCar… · Horn of Africa Risk Transfer for Adaptation (HARITA) Project { now R4 Insurance designed for](https://reader035.fdocuments.us/reader035/viewer/2022070718/5eddd658ad6a402d66690bdd/html5/thumbnails/6.jpg)
What is (Weather) Index Insurance?
Index Insurance:I Pays out based on the value of an ‘index’.
I Index Examples:
I Regional variables (e.g. area-yields,livestock mortality).
I Weather-related variables (e.g. rainfall,temperature).
I Climate-related variables (e.g. El-Nino).
Conventional Crop/Agricultural Insurance:I Pays based on verifiable losses.
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Weather Index Insurance for Poor Farmers
Key: Get the science & design behind index insurance right.
I For index insurance to be a sustainable tool to enable farmersto make productive investments
Current Weather Index Insurance Research Programs:
I Using improved forecast information to improve indexes.
I Better project design to unlock productive opportunities.
I Evaluating the impact on poor farmer livelihoods.
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Linking Weather Index Insurance & Forecast Information
How can improved forecast skill be combined with weatherindex insurance to improve livelihoods?
Moron, Robertson & Boer (2009)
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Linking Weather Index Insurance & Forecast Information
Targeted Research to Enable Forecast Skill to Assist FarmerDecision-Making
Moron, Robertson & Qian (2010)
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Linking Weather Index Insurance with Credit
Use Game Theory Models:
I How might index insuranceaffect lending/borrowingdecisions?
I Developed from nobel prizewinning economic models ofrisk in credit markets.
How does index insurance affect rural credit markets?
I Reduces risk that farmers cannot repay loans.
I Affects incentives to improve productivity.
I Implications for key insurance design questionssuch as who should hold the insurance.
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Weather Index Insurance Program Evaluation: EthiopiaHorn of Africa Risk Transfer for Adaptation (HARITA) Project – now R4
Insurance designed for low income farmers in remote region :
I Simple, targeted index insurance design using NOAA ARC2satellite-based remote sensing rainfall data
I Has reached ten of thousands of farmers in over 80 villages
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Weather Index Insurance Program Evaluation: EthiopiaHorn of Africa Risk Transfer for Adaptation (HARITA) Project – now R4
Econometric Evaluation based on Panel Dataset: Preliminaryevidence of important development impacts:
I Investment in land planted, seed use, and fertilizer application
I Households adopting new income diversification strategies
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Weather Index Insurance & IRI
I Some index insurance project locations:I Ethiopia, Ghana, Honduras, Indonesia,
Kenya, Malawi, Mali, Nicaragua,Rwanda, Senegal, Tanzania, Uganda
I Some index insurance partners:I CRED, Ethiopian NMA, ILO,
IPB/CCROM, ORDA, Oxfam America,Syngenta Foundation, REST,Rockefeller Foundation, SwissRe,USAID, WFP, World Bank