Index-based insurance schemes have been implemented to protect smallholder farmers against agricultural losses, but basis risk and delays in insurance payouts suppress demand for such products, fostering mistrust in insurance when insured farmers experience crop losses and do not receive a (timely) payout.
The proposed project will partner with the World Food Programme’s R4 Rural Resilience Initiative in Ethiopia and researchers from the Ethiopian Institute for Agricultural Research, Bahir Dar University, the University of Arizona, the International Food Policy Research Institute, and the University of Manchester.
The project mainly aims to lower basis risk and premiums of R4 products and improve timing of payouts. While (drought tolerant) improved seeds are promoted through trial packs to reduce production risks, picture-based insurance (PBI) is introduced to reduce basis risk. Mobile banking will be adopted to facilitate more timely payouts to farmers, so that farmers can use insurance payouts to mitigate further crop losses. Biophysical crop simulations of the impacts that drought-tolerant varieties promoted through the project can have on agricultural risk management will help optimize index design and lower premiums for farmers adopting risk-reducing technologies and practices.
We will evaluate the impact of these innovations on insurance demand, productivity, profitability, risk mitigation, consumption smoothing and resilience, by randomizing the types of products/interventions being offered across villages.