ICTforAg 2024: Washington, D.C. - Protecting Farmers: Weather Based Index Insurance (J-PAL)

ICTforAg 2024: Washington, D.C.
Session: Protecting Farmers: Weather Based Index Insurance (J-PAL)
Speaker: Sarah Coughlin, Senior Policy Associate, Abdul Latif Jameel Poverty Action Lab (J-PAL)
Floods, droughts, heat waves, cold spells, and other natural disasters are large sources of risk for farmers that can cause devastating crop losses, and these events are becoming more common due to climate change. Small-scale farmers in low- and middle-income countries often do not have access to government-provided social safety nets or mandatory insurance schemes that offer protection against weather shocks. Instead, they often safeguard against the threat of future losses by choosing to cultivate crops with stable but low yields and may limit their upfront investments in profitable technologies like fertilizer. As a result, their standard risk-reducing options can lead to a cycle of low-risk and low-return agricultural production. One innovation to protect hard-to-reach small-scale farmers from the effects of weather shocks is index insurance, in which payouts for crop losses are made on a sliding-scale basis by basing payouts on an easily observable variable, like rainfall at a local weather station. While there is a large body of evidence on index insurance, and studies show that it does lead to incentivizing riskier, but more profitable, decision-making, farmers’ take-up of insurance is consistently low without large subsidies in place. Using ICTs to boost farmers’ learning about insurance and their trust in it, as well as continued innovation in product design and technological advances like satellite imagery and picture-based insurance, may be key to boosting take-up to drive farmers toward more profitable decision-making.