Insuring Against Drought

In our latest video interview, research economist Dan Osgood discusses index insurance and how it is helping some poor rural communities reduce hardships caused by drought in East Africa:

These products are becoming available to people for the first time at larges scales just this year. Given the difficulties of these [two] years, the farmers will be able to benefit from payouts…The other side of how the insurance can help is for those people who are in regions outside of where the drought is hitting–some places are having normal or above-normal rainfall this year. Those areas illustrate how the farmers can use the insurance to take more product chances, for example being able to take out a loan for fertilizer because they know if there is a drought, they’ll be able to repay that loan.

Because both the farmers who are within the drought and outside of the drought are in the [insurance] pool and have paid premiums, the premiums can be cheaper and the coverage for the drought can be less expensive than if only farmers who were in [drought areas] were covered. The whole community is helping each other, using some people’s ‘good’ years to help cover other people’s ‘bad’ years…

Watch the entire interview below.

IRI plays a leading role in developing rainfall indexing methods, working closely with partners such as Oxfam America, Swiss Re, the World Bank’s Commodity Risk Management Group and the World Food Programme on index insurance projects around the world. IRI has worked in Ethiopia for more than a decade, gaining an in-depth knowledge about the country’s climate and agriculture. Under the Oxfam America led Horn of Africa Risk Transfer for Adaptation project, IRI has worked with local organizations such as the Relief Society of Tigray, the Dedebit Credit And Savings Institution, Nyala Insurance, Ethiopia’s National Meteorological Agency, the Africa Insurance Company, Mekele University and others to design hundreds of contracts, purchased by tens of thousands of farmers.