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Protecting pastoralists against mortality losses due to severe forage scarcity

  1. Prevent downward slide of vulnerable populations
  2. Stabilize expectations & crowd-in investment and accumulation by poor populations
  3. Induce financial deepening by crowding-in credit supply and demand
  4. But can insurance be sustainably offered in remote infrastructure deficient areas and to smallholders?
  5. Conventional (individual) insurance unlikely to work, especially among pastoralists:
  6. Transactions costs
  7. No transactions costs of measuring individual losses
  8. Preserves effort incentives (no moral hazard) as no single individual can influence index.
  9. Adverse selection does not matter as payouts do not depend on the riskiness of those who buy the insurance
  10. Available on near real-time basis: faster response than conventional humanitarian relief
  11. Policy holders paid based on external “index” that triggers payments to all insured clients
  12. Suited for risks affecting a large number of people simultaneously and for which a suitable index exists.
  13. No transactions costs of measuring individual losses
  14. Preserves effort incentives (no moral hazard) as no single individual can influence index.
  15. Adverse selection does not matter as payouts do not depend on the riskiness of those who buy the insurance
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