Opinion: 5 ways to invest in building agricultural insurance markets

Herders and farmers at a goat market in Kenya. Photo by: University of California, Davis

An accumulation of evidence in recent years has shown that index insurance can be a key tool for the future of food security and resilience. This development has governments and donors rushing to invest in subsidies to help speed uptake, but what kinds of investments should be priorities?

Index insurance for agriculture has shown remarkable potential for smallholder farmers at risk of climate-related disasters across the developing world. While conventional insurance requires losses to be verified, index insurance avoids these high costs by basing payouts on an averaged index of factors, such as vegetation growth or rainfall, that can be measured remotely.

Index insurance has made it possible to evaluate how agricultural insurance can work as a tool for development. Research has shown that insured pastoralists in northern Kenya were much less likely — up to 70 percent less likely — to use harmful coping strategies that can prolong and deepen poverty in the long term. Insured cotton farmers in West Africa increased the area of cotton cultivation by 55 percent and used more productive inputs by 50 percent.

This is how insurance works. It protects farmers in the event of a disaster and frees them up to invest prudently and securely in higher productivity, both of which improve their chances of putting poverty behind them. However, with few exceptions demand and uptake remain low. Index insurance pilots are rarely scaled.

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About the author

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    Tara Steinmetz

    Tara Steinmetz is the assistant director of the Feed the Future Innovation Lab for Assets & Market Access at the University of California, Davis, where she supports a wide portfolio of research focused international development, risk management and resilience, including the I4 Index Insurance Innovation Initiative. She holds a B.A. in political science from American University and a master of public policy from Duke University.