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A business approach to poverty reduction: CSA and index insurance
Helen Greatrex1,2, James Hansen1,2, Jon Hellin3, Dan Osgood1
1: International Research Institute for Climate and Society (IRI), Columbia University, 2: CCAFS Flagship 2,
3: International Maize and Wheat Improvement Centre (CIMMYT)
Montpellier
March 16-18, 2015
THE ISSUE
One of the aims of CSA is to improve productivity
Climate change: more bad years,
Adaptation: increase productivity in normal years
to cover bad year loss
But strategies that increase productivity in
most years face increased risk in bad years
Threat of 1 drought year out of 5 prevents
other 4 from being much more productive
One key to adaptation is to relax risk
of bad year to unlock productivity options
Insurance:
reduce risk to unlock productive options
"The problem is that before the rainy season,
you have to make a choice.
If you make the wrong choice,
you risk losing everything." Oumar Sakho, Senegalese farmer
WHY INSURANCE?
Quote: http://wwwp.dailyclimate.org/tdc-newsroom/2013/05/africa-adapts-climate
Insurance: reduce risk to unlock productivity
But problems with traditional insurance have
made it tough to implement
Recent innovation: instead insure an index
E.g. provide payout if there is drought or flood
Different families:
Weather index, Area yield index
Cheap, “easy” to implement, good incentives
Many limitations--often doesn’t pay
when farmer faces loss (basis risk)
Still in early years
INDEX INSURANCE
HAS IT SCALED?
Plenty of examples where it hasn’t!
But there are examples:
ACRE (Kilimo Salama)
• 200,000 farmers in East Africa
• Menu of products
• Bundles with agricultural loans and seed
• Links to MPESA banking
• Some satellite, some raingauge
IBLIP Mongolia
• 20,000 pastoralists in Mongolia
• Based on a regional mortality index
• Transitioned from donor funded to commercial
• Layered approach to risk
R4 Rural Resilience Initiative (WFP, Oxfam America and other partners)
20,000 farmers in Ethiopia
2,000 in Senegal
Moving into Zambia and Malawi
• Unsubsidized premium,
• non-loan bundled, non-mandatory
• Insurance for work
• Satellite rainfall estimate triggers payouts
• High demand (take-up exceeds capacity)
• Positive development impacts
Extremely participatory farmer design, validation, sales process-each village leads
their design through formal quantitative participatory process
But still many challenges (basis risk, logistics), not suitable for all
HAS IT SCALED?
Link to protection of assets
or productive opportunities
Farmers make more money if they have
insurance that pays for the premium
Holistic approach
The only role of insurance is to protect against
years where everything else fails
Farmer driven design
People will buy a product that meets their needs.
Feedback channels & local context
Solid science
Index design must be statistically and
agronomically robust
GENERAL THEMES OF SUCCESS
“CSA is an approach of trade offs and tools for synergies
and options linked to local priorities and conditions.”
Insurance is too expensive if it doesn’t unlock opportunity
or if displaces a more effective tool
INSURANCE IS NOT USEFUL IN EVERY SCENARIO
IT’S A TOOL WITHIN THE CSA APPROACH
Who is the client? What do they want? How will insurance impact them?
What option does insurance unlock? What needs protecting?
What index best represents the farmer’s loss years?
EVERY CASE AND INDEX WILL BE DIFFERENT
• Moves beyond the CSA ‘comfort zone’: Index insurance is more than just the index
• Iterative learning process
– Build strong relationships, solid science, strong distribution methods, validation
and improvement, transparent, understandable products
– Start slowly and carefully to scale quickly on solid foundation
NEW WAY OF THINKING
Re-insurers
Policy makers
InsurancepoolsIndividual
insurers
Banks / MFIs
Ag input suppliers
“Intermediaries”IndividualFarmers Extension
officers
Scientists/social/gender scientists
National met agencies/remo
te sensing
Donors
NGOs
INDIVIDUAL LOCAL REGIONAL/COUNTRY LEVEL GLOBAL
Farmer groups
• CCAFS Flagship 2:
– CASCAID: Insurance and gender sensitive participatory processes in Ghana
– East Africa: Index design and the uptake of drought tolerant maize
– Indian and South Asia
• NASA
– IDS: Remote sensing in African index insurance
• IFAD
– WRMF: Remote sensing in African insurance, Senegal case study
• Studies on participatory approaches and economic research games
• Impact evaluations
NEW RESEARCH ON INSURANCE
