This document summarizes a study on using traditional risk-sharing groups in Ethiopia to promote index-based weather insurance. The study found that weather risk is a major challenge for farmers and that insurance could help but demand is low due to basis risk. The study conducted a randomized experiment providing insurance to individual households and groups both with and without mandated sharing rules. It found that insurance uptake increased more for groups, especially those with mandated rules. Groups also saw improved access to loans/grants. The study provides evidence that integrating formal insurance with strengthened informal groups can increase welfare by addressing correlated and individual risks. It implies traditional groups have potential for scaling insurance if rules are institutionalized.
Do informal risk sharing groups reduce the challenge of providing weather ind...essp2
Ethiopian Development Research Institute and International Food Policy Research Institute (IFPRI/EDRI), Tenth International Conference on Ethiopian Economy, July 19-21, 2012. EEA Conference
Do informal risk-sharing groups reduce the challenge of providing weather ind...essp2
Ethiopian Development Research Institute (EDRI) and International Food Policy Research Institute (IFPRI), Seminar Series, May 11, 2012 AAU AC Chamber and June 123-14, 2012 I4 Technical Meeting, Rome, Italy.
Before and After the Drought: Evidence on the Impact of Index Insurance on Sm...BASIS AMA Innovation Lab
BASIS Director Michael Carter (working collaboratively with Ghada Elabed and Sarah Janzen) presented at the OECD meeting in Paris, September 2015 on the topic of index insurance and its impact on small farm investment and social protection.
At the Workshop on Innovations in Index Insurance to Promote Agricultural and Livestock Development in Ethiopia, held December 3rd, 2015 in Addis Ababa, Craig McIntosh of UC San Diego, presented on challenges and pitfalls of implementing rainfall insurance
Do informal risk sharing groups reduce the challenge of providing weather ind...essp2
Ethiopian Development Research Institute and International Food Policy Research Institute (IFPRI/EDRI), Tenth International Conference on Ethiopian Economy, July 19-21, 2012. EEA Conference
Do informal risk-sharing groups reduce the challenge of providing weather ind...essp2
Ethiopian Development Research Institute (EDRI) and International Food Policy Research Institute (IFPRI), Seminar Series, May 11, 2012 AAU AC Chamber and June 123-14, 2012 I4 Technical Meeting, Rome, Italy.
Before and After the Drought: Evidence on the Impact of Index Insurance on Sm...BASIS AMA Innovation Lab
BASIS Director Michael Carter (working collaboratively with Ghada Elabed and Sarah Janzen) presented at the OECD meeting in Paris, September 2015 on the topic of index insurance and its impact on small farm investment and social protection.
At the Workshop on Innovations in Index Insurance to Promote Agricultural and Livestock Development in Ethiopia, held December 3rd, 2015 in Addis Ababa, Craig McIntosh of UC San Diego, presented on challenges and pitfalls of implementing rainfall insurance
Linking Formal and Informal Insurance: Experimental Evidence from EthiopiaBASIS AMA Innovation Lab
At the Workshop on Innovations in Index Insurance to Promote Agricultural and Livestock Development in Ethiopia held on December 3rd, 2015 in Addis Ababa, Guush Berhane from the International Food Policy Research Institute presented on the complementarity of index insurance programs and informal risk-sharing groups
At the Workshop on Innovations in Index Insurance to Promote Agricultural and Livestock Development, December 3rd, 2015 in Addis Ababa Ethiopia, Chris Barret of Cornell University presented on the favorable impacts of implementing index-based livestock insurance.
Index‐based Rainfall Insurance in Rural Ethiopiaessp2
International Food Policy Research Institute (IFPRI) and Ethiopian Development Research Institute (EDRI). Conference on "Towards what works in Rural Development in Ethiopia: Evidence on the Impact of Investments and Policies". December 13, 2013. Hilton Hotel, Addis Ababa.
The potential for generic weather products and group contractsILRI
Presentation by IFPRI and the University of Oxford at the Index insurance for agriculture in Ethiopia Workshop, Addis Ababa, Ethiopia, 9 December 2010.
Webinar on Bundling agriculture index insurance with financial and non financ...Impact Insurance Facility
The WBG's Global Index Insurance Facility, the USAID and BASIS/I4-sponsored Global Action Network (GAN) and the ILO's Impact Insurance Facility organised a webinar to look into the question "How can index insurance be bundled with other financial and non financial services". This webinar featured speakers from global organizations who shared experiences and discussed which services and activities in the agriculture value chain are most aligned for bundling. It explored mechanisms and issues in bundling, and also looked into the possible impact of bundling on pricing & off-take of index insurance and measures of tracking it.
Speakers: François-Xavier Albouy (Vice President PlaNet Guarantee), Michael R. Carter (Professor and Director BASIS Research Program, University of California, Davis), Shadreck Mapfumo (Senior Financial Specialist World Bank Group) and David Muigai (Actuarial Officer ACRE).
A business approach to poverty reduction: CSA and index insurance - H. Great...CIMMYT
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)
Protecting pastoralists against mortality losses due to severe forage scarcityILRI
Presented by Andrew Mude at the Workshop on The Future of Pastoralism in Africa: International Conference to Debate Research Findings and Policy Options, Addis Ababa, 21-23 March 2011.
Launch Presentation - Social Protection for the Informal Economy: Operational...RenataMello60
Launch Presentation. The informal economy in Africa is large and diverse, and it is the main source of employment in the region. It is projected to grow and create more jobs. The informal economy is well established in the region, but it also faces a host of development challenges. It is characterized by low human capital and productivity compared with the formal economy and is typically associated with limited access to resources such as electricity, finance, land, and public services. People who work in the informal economy are usually more susceptible to short-term shocks and the more catastrophic consequences of idiosyncratic shocks (acute short-term crises, such as illness) and covariate shocks (chronic or widespread shocks affecting entire communities). These vulnerabilities are exacerbated because these people ordinarily have limited avenues to formal financial institutions or risk mitigation instruments. Women are more likely to work in the informal economy in Africa and are therefore also more likely to experience precarious work environments. The COVID-19 pandemic highlighted the vulnerabilities of the vast informal economy, especially in urban areas. Social protection cash transfers provided an essential platform for delivering assistance in response to the COVID-19 shock in the Africa region. In addition to macroeconomic measures to support economic recovery, governments needed to limit the damage to livelihoods, especially in the informal economy. Many governments in the region added to their capacity to extend coverage with innovations in targeting and delivering payments by leveraging technology and using big data. In many cases, registration was carried out using mobile technology. Some governments opted to implement more direct registration processes by creating dedicated websites or relying on informal economy associations. These swift responses were success stories in their own right, but they were undertaken essentially as a response to an urgent requirement to provide much-needed support to groups that lacked social protection and to prevent them from slipping into poverty. Governments allocated significant resources, typically through external financing (US6.1 billion dollars in additional spending in 30 countries across Africa).
Presentation by Rahab Kariuki, Managing Director, ACRE Africa, at the Scaling up agricultural adaptation through insurance conference, on the sidelines of SBSTA. https://ccafs.cgiar.org/scaling-agricultural-adaptation-through-insurance
Andrew G. Mude (ILRI). Building Climate Resilient Livelihoods through Index-Insurance in Northern Kenya. Presented at CCAFS Science Meeting, 1-2 December 2010
Presented by Francesco Fava at the Index-Insurance for Livestock in the IGAD Region Ministerial Policy Roundtable and Technical Workshop, ILRI, Addis Ababa, 24-26 June 2019
Presentation made by Annette Houtekamer (Business Development Manager, ACHMEA, Netherlands) at the 6th ICMIF Development Network Seminar (1-2 November 2012; Nairobi, Kenya)
Linking Formal and Informal Insurance: Experimental Evidence from EthiopiaBASIS AMA Innovation Lab
At the Workshop on Innovations in Index Insurance to Promote Agricultural and Livestock Development in Ethiopia held on December 3rd, 2015 in Addis Ababa, Guush Berhane from the International Food Policy Research Institute presented on the complementarity of index insurance programs and informal risk-sharing groups
At the Workshop on Innovations in Index Insurance to Promote Agricultural and Livestock Development, December 3rd, 2015 in Addis Ababa Ethiopia, Chris Barret of Cornell University presented on the favorable impacts of implementing index-based livestock insurance.
Index‐based Rainfall Insurance in Rural Ethiopiaessp2
International Food Policy Research Institute (IFPRI) and Ethiopian Development Research Institute (EDRI). Conference on "Towards what works in Rural Development in Ethiopia: Evidence on the Impact of Investments and Policies". December 13, 2013. Hilton Hotel, Addis Ababa.
The potential for generic weather products and group contractsILRI
Presentation by IFPRI and the University of Oxford at the Index insurance for agriculture in Ethiopia Workshop, Addis Ababa, Ethiopia, 9 December 2010.
Webinar on Bundling agriculture index insurance with financial and non financ...Impact Insurance Facility
The WBG's Global Index Insurance Facility, the USAID and BASIS/I4-sponsored Global Action Network (GAN) and the ILO's Impact Insurance Facility organised a webinar to look into the question "How can index insurance be bundled with other financial and non financial services". This webinar featured speakers from global organizations who shared experiences and discussed which services and activities in the agriculture value chain are most aligned for bundling. It explored mechanisms and issues in bundling, and also looked into the possible impact of bundling on pricing & off-take of index insurance and measures of tracking it.
Speakers: François-Xavier Albouy (Vice President PlaNet Guarantee), Michael R. Carter (Professor and Director BASIS Research Program, University of California, Davis), Shadreck Mapfumo (Senior Financial Specialist World Bank Group) and David Muigai (Actuarial Officer ACRE).
A business approach to poverty reduction: CSA and index insurance - H. Great...CIMMYT
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)
Protecting pastoralists against mortality losses due to severe forage scarcityILRI
Presented by Andrew Mude at the Workshop on The Future of Pastoralism in Africa: International Conference to Debate Research Findings and Policy Options, Addis Ababa, 21-23 March 2011.
Launch Presentation - Social Protection for the Informal Economy: Operational...RenataMello60
Launch Presentation. The informal economy in Africa is large and diverse, and it is the main source of employment in the region. It is projected to grow and create more jobs. The informal economy is well established in the region, but it also faces a host of development challenges. It is characterized by low human capital and productivity compared with the formal economy and is typically associated with limited access to resources such as electricity, finance, land, and public services. People who work in the informal economy are usually more susceptible to short-term shocks and the more catastrophic consequences of idiosyncratic shocks (acute short-term crises, such as illness) and covariate shocks (chronic or widespread shocks affecting entire communities). These vulnerabilities are exacerbated because these people ordinarily have limited avenues to formal financial institutions or risk mitigation instruments. Women are more likely to work in the informal economy in Africa and are therefore also more likely to experience precarious work environments. The COVID-19 pandemic highlighted the vulnerabilities of the vast informal economy, especially in urban areas. Social protection cash transfers provided an essential platform for delivering assistance in response to the COVID-19 shock in the Africa region. In addition to macroeconomic measures to support economic recovery, governments needed to limit the damage to livelihoods, especially in the informal economy. Many governments in the region added to their capacity to extend coverage with innovations in targeting and delivering payments by leveraging technology and using big data. In many cases, registration was carried out using mobile technology. Some governments opted to implement more direct registration processes by creating dedicated websites or relying on informal economy associations. These swift responses were success stories in their own right, but they were undertaken essentially as a response to an urgent requirement to provide much-needed support to groups that lacked social protection and to prevent them from slipping into poverty. Governments allocated significant resources, typically through external financing (US6.1 billion dollars in additional spending in 30 countries across Africa).
Presentation by Rahab Kariuki, Managing Director, ACRE Africa, at the Scaling up agricultural adaptation through insurance conference, on the sidelines of SBSTA. https://ccafs.cgiar.org/scaling-agricultural-adaptation-through-insurance
Andrew G. Mude (ILRI). Building Climate Resilient Livelihoods through Index-Insurance in Northern Kenya. Presented at CCAFS Science Meeting, 1-2 December 2010
Presented by Francesco Fava at the Index-Insurance for Livestock in the IGAD Region Ministerial Policy Roundtable and Technical Workshop, ILRI, Addis Ababa, 24-26 June 2019
Presentation made by Annette Houtekamer (Business Development Manager, ACHMEA, Netherlands) at the 6th ICMIF Development Network Seminar (1-2 November 2012; Nairobi, Kenya)
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Panel on ‘Statistical Data for Policy Decision Making in Ethiopia’, African Statistics Day Workshop organized by the Ethiopian Statistics Service (ESS). 17-Nov-22.
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Insuring against the weather using traditional groups
1. Insuring against the weather:
Using traditional groups to promote index-based weather
insurance in Ethiopia
Guush Berhane, Daniel Clarke,
Stefan Dercon, Ruth Vargas Hill and
Alemayehu Seyoum Taffesse
IFPRI ESSP-II
Improved evidence towards better food and agricultural
policies in Ethiopia; November 02, 2012
Hilton Hotel, Addis Ababa
1
2. Introduction
Weather risk remains a major challenge to farming in the arid
and semi-arid areas of the tropics;
With ever changing climatic conditions, agriculture has
become increasingly uncertain business!
Drought explains largest share of income variability in Ethiopia
Household level = 60 – 75%
National - strong GDP and rainfall variability
2
3. Introduction
Thin insurance possibilities. Informal insurance hampered
by risks correlated across households and villages;
Index-based weather insurance offers new possibilities;
Several experimenations, including in Ethiopia, but
demand remains invariably low; chances of scalling up
stiil very low!
Basis-risk – a key challenge
Efforts to mitigate basis risk are so far very limited;
3
4. Introduction
Question – design simple, flexible, and affordable generic
insurance policy that mitigates basis risk?
Reduce basis risk by increasing side-payments?
Institutionalization of pre-defined sharing rules needed?
Would such insurance design work? Welfare effects?
If so, what are the mechanism through which this would
work?
Can we achieve the dual goal of ‘harnessing groups to mitigate
basis risk’ and ‘make them more resilient to correlated risks’?
Approach - randomized field experiment
4
5. Weather index pilot in Ethiopia
Long run pilot—looking at group institutions takes time
first year in 2011, second year in 2012, continues …!
57 Kebeles selected around 3 weather stations in Oromia
region of Ethiopia – Shashemene, Dodota and Tibe;
Primary interest is to target risk-sharing group, so we designed
the pilot such that we can evaluate effects of our intervetions!
5
6. Pilot Design 57 Kebeles
(110 Villages)
TREATMENT CONTROL
(60 villages) (50 villages)
GROUP INDIVIDUAL
(35 villages) (25 villages)
MANDATED NON-MANDATED
(18 villages) (17 villages)
6
7. Mandated sharing-rules
What did we mandate?
Discuss and set sharing rules (or bylaws) … key features
Regular savings to a common pot;
Contribute 10% of any insurance payout in this group to this
pot;
Disburse this pot to members that experience idiosyncratic
basis risk, as loan at zero-interest;
7
8. Provision of savings
Money was contributed (to the pot) by project as “savings”
with the aim of
Examine disbursements and promote trust!
Help initiate discussions on formulation of (pre-defined)
additional sharing-rules
Disbursed to 800 Birr to both iddir villages (mandated and non-
mandated) and individual villages (16 individuals, 50 Birr each).
8
12. Insurance marketing
Very few early season (May, June and July) polices were sold
in 2011!
Discounts offered for late season (September/Meskerem) in
2011 & for all season in 2012 policies
Free insurance in Dodota and Bako Tibe;
Price discounts in Shashemene: 40%, 60%, and 80%
discounts randomly allocated across villages;
12
13. Insurance sales …2011
296 policies were sold in Shashemene (134 individuals
and 435 iddir members), about 13% of households;
13
14. Payouts …2011
September rains were poor in Shashemene – index
triggered a payout!
Insurance payout was made at the end of October in
Shashemene.
“Savings” payouts were also made at the end of October
in all three sites.
14
15. Survey & data
Baseline survey: February –March 2011:
1760 households in 110 villages
(16 households per village);
Follow up survey I: December 2011;
Follow up survey II: February-March 2012;
Follow up survey III: February-March 2013;
15
16. Baseline characteristics … households
High incidence of drought:
51% experienced drought shock in the last three years;
Very little knowledge of insurance:
10% had heard about traditional indemnity (car, life or
health) insurance;
High initial interest in index-type insurance:
87% were interested in a weather indexed insurance policy
described to them in the survey;
Indications of huge basis risk:
only 32% thought rainfall measured at the nearest weather
station can accurately measure rainfall on their plots;
16
17. Baseline characteristics … Iddirs
Key features of Iddirs:
Very prevalent in those areas (as in many parts of
Ethiopia)
92% households belong to 1-5 iddirs; only 5% did not
belong to an iddir
They are limited to ‘the village ‘…
80% span within the village
17
18. Data analysis
Compare outcomes between the control and the following
treatment groups:
Individual and iddir
Mandated and non-mandated iddirs
Run a simple ANCOVA for outcome variables of interest with
baseline data;
18
19. Results
Effects on insurance take-up:
Interventions increased insurance purchases both in individual
and mandated iddir villages, but no statistical difference in
amount purchase between the two!
Effects on access to loans and grants:
Insurance improved access to grants/loans to cover crop loss
(crowding in of risk-sharing);
Insurance increased perceived ability to finance emergencies,
but not business ventures;
Result is driven by changes in the iddir villages, particularly
changes in the mandated ones;
19
20. Results
Impact on welfare:
Only moderate effects in the short-term
Where there were payouts (Shashemene):
Those in mandated villages more likely to purchase
household durables (clothing, footwear and mobile
phones) in the 4-5 months following payouts than those in
control villages.
Livestock ownership increased in mandated villages
No effect on food consumption;
Where there were no payouts (non-Shashemene sites):
No effect on food consumption or durable purchases;
20
21. Conclusions & implications
Limits to formal and informal insurances to mitigate weather risk
Index-based insurance unable to meet individual specific risks
Iddirs unable to meet risks correlated across households and
villages!
We find evidence that there is high potential to dealing with this
problem by integrating both:
Formal insurance addressing correlated risks via the index;
informal insurance addressing individual specific risks through
strengthening of existing iddir rules; promoting more loans &
transfers.
Iddirs as retail outlets – reduce cost,& promote trust
21
22. Conclusions & implications
We find evidence that a product that integrates both
Increases household welfare (purchase of household durables)
However, for all these to work, institutionalization of new
sharing rules is required!
Policy implications:
Immense potential of ‘traditional groups’ for scaling up of
weather related insurance;
Pool iddirs beyond the village, possibily bring them under one
national – risk pooling - umbrella!
Among others, favorable national legal framework, one that
allows including international re-insurance is needed!
22
23. What next …, 2012, & beyond?
Continued with the same design, but
Add an innovative feature to the index – gap insurance –
A lot of optimism last Meher season (2012) –
1537 policies sold in Shashemene (where payouts
were made in 2011)
Payouts made in Dodota & Shashemen for May 2012
Enthusiasm of our partner (BG) MFI for scalling up as a
business model, also linked to its saving & credit products
23