“Using Simple Weather Securities to Insure Rain-Dependent Farmers in Ethiopia” an IFPRI proposal in collaboration with Nyala Insurance S.C., Ethiopia is among the winners of the 2010 MIF competition.
“The securities have three characteristics—simplicity, flexibility and inclusivity—that encourage stronger take up rates than the ones observed for current weather index based insurance policies. Providing these securities in Ethiopia can improve the welfare of millions of rain-dependent farmers."
Coping with erratic rainfall is one of the biggest challenges facing rural poor people. Drought can be devastating in the short-term, and can perpetuate long-term poverty by causing farmers to sell assets and forgo investments. To protect against risk, poor people need flexible, simple and affordable insurance products.
Farmers purchase weather securities, tickets that pay out for moderate or severe reductions in rainfall. Securities pay off based on objective cut-offs, making benefits clearly defined and easily understandable. Whilst the cut-offs are designed around crop needs, the insurance is not limited to a particular crop. Traders and others whose income is affected by drought can also participate.
Weather securities are simpler and more flexible than previous forms of weather index based insurance, making them appealing to farmers and cheaper to provide. They have low overhead, making them replicable and scalable. The project will target farmers in Ethiopia, but could potentially be expanded far beyond that.
Ruth Hill discusses weather securities research:
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