Weather risk remains a key constraint for agricultural development in Ethiopia. Index-based insurance may offers an innovative cost-effective mechanism to offer insurance and thereby allow more high return investments in agriculture. However, the uptake of these products is often low. New insurance products are not delivered in a vacuum, as poor communities have various mechanisms to cope with risk. Existing risk sharing networks could provide a cost-effective means of spreading innovative risk management mechanisms such as insurance. Furthermore if they can be encouraged to mutually insure some components of basis risk we may observe higher take-up with better welfare outcomes.
Using an experimental design we offer such policies to informal funeral societies in Ethiopia and find that when offering specific training to highlight the group benefits of these policies, uptake is boosted considerable. These findings are of direct relevance for government to develop effective catastrophic and agricultural risk management strategies, and for private sector aiming to expand their insurance market into rural areas.
Dercon, S.; Vargas Hill, R.; Outes-Leon, I.; Clarke, D.; Taffesse, A.S.; Berhanu, G. Offering rainfall insurance to informal insurance groups: evidence from a fieldexperiment in Ethiopia (IGC Policy Brief). (2011) 2 pp.