Impact evaluation and product design of weather insurance

Principal Researchers: Profs. Shawn Cole (Harvard Business School), Jeremy Tobacman (Harvard University) and Petia Topalova (IMF)
Partner Organization: SEWA, Gujarat

Project Publications: Barriers to Household Risk Management: Evidence from India; Cole, Shawn, April 2009.

Weather Insurance Operations Manual by CMF and SEWA

The poor in rural India are vulnerable to substantial risks; drought or excessive rain, for example, can cause crop failure, leading to hardship. Recent innovations in the insurance sector have led to the development of rainfall insurance, which may dramatically improve the livelihoods of the rural poor (both farmers and landless laborers) by considerably reducing the vulnerability to adverse weather conditions. Insurance against adverse rainfall (rather than crop output) allows claim settlement to be fast, and is, more importantly, free of moral hazard or adverse selection problems that have plagued crop insurance schemes. While this product is a very promising mechanism, it has a relatively short track record. Several important questions need resolution before operations can be scaled up. The objective of this study is to evaluate the impact of rainfall insurance on reducing risks faced by poor agricultural households. This research will also identify which aspects of the program are the most and the least attractive to clients, and design two alternative marketing plans. Some important questions the study seeks to answer include: How effectively does a rainfall insurance program reduce the vulnerability of poor households? How will it affect local risk-sharing? Will policy holders undertake more projects with a higher return? Will there be any effect on the local price of goods, or on wage rates? What are effective ways to convince farmers to take up this product?

The baseline and the midline surveys have been completed in a little over 1500 households. Based on the data and experiences from the first year, the insurance product and the marketing strategy are being redesigned to serve the needs of the clients more effectively.

CMF Research Associate: Nilesh Fernando

See some related CMF documents:
# Project description document [PDF, 112KB]
# Rainfall insurance (Eye on Microfinance, Issue 4)