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A business approach to poverty reduction: CSA and index insurance - H. Greatrex et al

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Presented in March 2015 at an international meetings in Montpellier, France, under the auspices of the CGIAR Research Program on Climate Change and Food Securtiy (CCAFS)

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A business approach to poverty reduction: CSA and index insurance - H. Greatrex et al

  1. 1. 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
  2. 2. 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
  3. 3. 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
  4. 4. 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
  5. 5. 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
  6. 6. 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?
  7. 7. 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 GENERALTHEMES OF SUCCESS
  8. 8. “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
  9. 9. 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
  10. 10. • 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 Insurance poolsIndividual insurers Banks / MFIs Ag input suppliers “Intermediaries”Individual Farmers Extension officers Scientists/soci al/gender scientists National met agencies/remo te sensing Donors NGOs INDIVIDUAL LOCAL REGIONAL/COUNTRY LEVEL GLOBAL Farmer groups
  11. 11. • 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
  12. 12. More details: greatrex@iri.columbia.edu Montpellier March 16-18, 2015 IBLI Photo

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