Institutions and Infrastructure for Market Development

Using Simple Weather Securities to Insure Rain-Dependent Farmers in Ethiopia

While weather-indexed insurance products can largely mitigate the impact of uncertain rainfall on the incomes of the rural poor, demand for such products has been limited. Developing simple, transparent insurance products is a prerequisite for expanding insurance markets in developing countries. This project presents a new approach to the provision of weather insurance in a pilot program in Ethiopia. The project design is innovative because it moves from a single insurance policy calibrated for the average losses of one crop to several simple weather securities —weather protection tickets—with fixed payments.

The objective of the project is to improve the welfare of rain-dependent farmers in Ethiopia through the use of weather securities with three characteristics—simplicity, flexibility, and inclusivity. These simple securities can encourage stronger take-up rates than those observed for current weather-indexed insurance policies.

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