How to Measure Whether Index Insurance Provides Reliable Protection

Morsink, Karlijn ; Clarke, Daniel Jonathan ; Mapfumo, Shadreck

World Bank, Washington, DC

关键词: agriculture;    index insurance;    basis risk;    drought risk;    flood risk;   

DOI  :  10.1596/1813-9450-7744
RP-ID  :  WPS7744

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

Agricultural index insurance offers thepromise of an affordable and sustainable insurance productfor farmers that can help reduce their vulnerability toaggregate agricultural shocks such as large-scale drought orflooding. However, index insurance provides claim paymentsbased on a trigger that is only imperfectly correlated withlosses. This implies that it carries basis risk: it mayprovide claim payments in years when there are no losses,and no claim payments in years when there are losses. Theimpact of index insurance on poverty outcomes is highlysensitive to the degree to which the product offers reliableprotection. Offering unreliable index insurance may lead tohigh reputation risk for donors, governments, and theprivate sector. This study proposes to measure thereliability of index insurance in terms of two policyobjectives that stakeholders may have when offering indexinsurance: the extent to which the insurance captures lossescaused by the peril covered by the contract (insured perilbasis risk) and the extent to which the insurance coverslosses from agricultural production (production smoothingbasis risk). For both types of basis risk two indicators areproposed:the probability of catastrophic basis risk andthe catastrophic performance ratio. Donors, governments, andinsurers can use the proposed monitoring indicators withoutmuch prior technical knowledge. Although the indicatorsspecifically focus on agricultural index insurance forlow-income farmers, they can be applied to any context wherepayments are provided based on indices that are correlatedwith losses.