Insuring against Rural Water Risk - Evidence from Kwale, Kenya

Abstract

This working paper assesses the case for insurance to address rural water sustainability challenges in Africa. Community-based management of handpumps has been the dominant approach to rural water supplies in sub-Saharan Africa for the last three decades, however the financing of operation and maintenance remains a chronic and widespread problem. In response, insurance models and concepts have been proposed to identify and reduce financial risk for community handpumps.

This study assesses the potential for handpump insurance to reduce financial risks in Kwale, Kenya, by drawing on data collected from over 3,000 households and 552 handpumps. Findings suggests that the unpredictable magnitude and timing of financial risk associated with handpump operation and maintenance presents a major challenge for communities. Pooling finances across multiple communities could reduce a communities’ exposure to high cost, low probability events. However, uptake and awareness of insurance products is low amongst rural water users, and a standalone handpump insurance product is unlikely to offer a viable business model. Instead, a more workable alternative would be high quality, supra-community maintenance services underpinned by an insurance-style financing mechanism that pools funds and spreads risk. Results from a choice experiment indicate households are open to alternative maintenance models, and would be willing to pay between USD 0.59-1.16 per month for a service that repaired handpumps within two days. Low-income households appear least likely to participate, which needs careful policy consideration. Field trials of these concepts are needed to demonstrate whether they offer feasible and scalable solutions.

Citation

Smith School of Enterprise and the Environment. Insuring against Rural Water Risk - Evidence from Kwale, Kenya. ESRC, (2015) 20 pp.

Insuring against Rural Water Risk - Evidence from Kwale, Kenya

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