Weather risk remains a major challenge to households in low-income economies whose livelihoods depend on agriculture. With over 80% of the population involved in the agricultural sector, the cost of uninsured weather risk can be substantial both in terms of immediate production losses to households as well as hindering them from making critical investments that promote livelihoods. Insuring against the weather has typically had low take-up rates, and even though there has been interest amongst individual farmers, there is little demand.
Well-organized insurance markets have the potential to help mitigate the adverse consequences of such risks by providing simple and affordable insurance products. Moreover, recent developments in index-based weather insurance offer new possibilities to smallholder farmers. However, the risks are only based on failing rainfall and do not take into account residual risks - a key challenge to convince farmers of the value of insurance.
IFPRI has tackled this problem by leading research and working together with: trusted traditional community groups (iddirs) where all households contribute, a private sector insurance company and a micro-finance institution (MFI). This risk-sharing approach with combined expertise, has encouraged insurance take-up and strengthened ability for communities to cope with crop failure and to finance emergencies. Importantly though, building on existing community roots where trust is paramount, has shaped a successful scheme that is being scaled up commercially to become a valid business proposition for the future. Download Outcome Note 4.