After the Drought: The Impact of Microinsurance on Consumption Smoothing and Asset Protection

Janzen, Sarah A.; Carter, Michael

doi:10.3386/w19702

Cited by 54 publications

(33 citation statements)

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“…An important disadvantage is basis risk (see below). In this 33 review paper we discuss the determinants of demand for index-insurance, the impact of 34 index-insurance on smallholder livelihoods, and the existing links between index-insurance 35 and credit. In this meta-analysis, we identify key discoveries on the potential of index-36 insurance in enhancing credit supply for smallholders and thus farm productivity.…”

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confidence: 99%

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Adoption and impact of index-insurance and credit for smallholder farmers in developing countries

Marr

Winkel

Asseldonk³

et al. 2016

Agricultural Finance Review

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Purpose – The purpose of this paper is to review the most recent scientific literature on the determinants explaining the demand for index-insurance, the impact of index-insurance and the existing links between insurance and credit. In this meta-analysis, the authors identify key discoveries on the potential of index-insurance in enhancing credit supply for smallholders and thus farm productivity. Design/methodology/approach – Following a systematic literature search in Scopus and Web of Science, relevant empirical articles were identified by using the following criteria search algorithm: “insurance” and (“weather” or “micro” or “area?based” or “rain*” or “livestock” or “index”), and ((“empiric*” or “experiment” or “trial” or “RCT” or “impact”) or (“credit” or “loan*” or “debt” or “finance”)). The authors identified 1,133 related papers, 110 of which were selected as closely matching the study criteria. After removing duplicates and analysing each document, 45 papers were included in the current analysis. The framework for addressing insurance and credit issues, in the paper, entails three subsequent themes, namely, adoption of insurance, impact of insurance and links between insurance and credit. Findings – It is not confirmed yet that demand for insurance is indeed hump-shaped in risk aversion and the functional form of this relationship should be tested in more detail. This also holds for the magnitude of the effect of trust and education on actual demand. Furthermore, it is unclear to what extent other risk mitigation strategies form complements or substitutes to index-insurance. Lastly, the interaction between basis risk and price is important to the design of index-insurance products. If basis risk and price elasticity are indeed highly correlated, products that diminish basis risk are crucial in increasing demand. On the impact of bundled products, e.g. combination of insurance and credit, limited empirical research has been conducted. For example, it is unknown to what extent credit suppliers would react to the insured status of farmers or what the preferences of farmers are when it comes to a mix of financial products. In addition, several researchers have suggested that microfinance institutions or banks could insure themselves against covariate risk, yet no empirical evidence about this insurance mechanism has been conducted so far. Research limitations/implications – The authors based the research on scientific literature uploaded in Scopus and Web of Science. Other potentially insightful grey literature was not included due to lack of accessibility. Given the research findings, there is plenty of opportunity for further research particularly with regard to the effects of bundled products, e.g. insurance plus credit, on demand for index-insurance, supply of credit, loan conditions and impact on farm productivity and farmers’ well-being. Practical implications – Microfinance institutions, insurance companies, NGOs, research institutions and universities, particularly in developing countries, will be interested to learn about the systematic review of scientific research done in the area of insurance and credit for agriculture and the possibilities for application in their own practice of supplying these financial products. Social implications – A rigorous understanding of the potential of index-insurance and credit is essential for identifying the right mix of financial products that help smallholder farmers to increase farm productivity and their own well-being. Originality/value – The paper is valuable due to its rigorous evaluation of existing theoretical and empirical research around issues explaining the degree of adoption and impact of index-insurance and that of bundled financial products (i.e. index-insurance plus credit). The paper has the potential to become essential reading for academics, practitioners and policy-makers interested in researching and putting in practice the best options leading to greater farm productivity and well-being in developing countries.

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confidence: 99%

“…23 24 In this section, three key factors, comprising twelve indicators, that help explain demand for Table 1, 2 and 3 in the Appendix. 34 …”

mentioning

confidence: 99%

Adoption and impact of index-insurance and credit for smallholder farmers in developing countries

Marr

Winkel

Asseldonk³

et al. 2016

Agricultural Finance Review

View full text Add to dashboard Cite

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“…This strategy, frequently used by farmers to cope with shocks (Janzen and Carter 2013), has been found to have pernicious effects on household welfare (Hill 2011) and lower households' ability to escape poverty (Lunde 2009). …”

Section: Agricultural Risk Management and Strategiesmentioning

confidence: 99%

Review of Pilot Projects on Index-Based Insurance in Africa: Insights and Lessons Learned

Marcantonio

Francois

2017

Green Energy and Technology

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Agricultural risk management involves a portfolio of strategies that can, to different extents, prevent, reduce, and/or properly transfer the impact of a shock. Adaptation, mitigation and coping strategies provide a range of complementary approaches for managing risks resulting from adverse weather events. This paper discusses how the issue of adverse weather events is a challenge for agriculture, and offers an overview of climate risk management strategies and an in-depth examination of one of the most tested risk transfer tools-index-based insurance. It describes the development of the insurance market in Africa, and analyses the major challenges and contributions made by weather index-based insurance.

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“…4 The implication is that agricultural investments are risk constrained in this population and that index insurance successfully relaxes that constraint, perhaps more effectively than cash transfers. Janzen and Carter (2013) study the same index based livestock insurance product in Kenya that we explore. They find that, in the wake of indemnity payments triggered by a massive drought, wealthy households with insurance foresee selling fewer livestock (their main productive capital) than their uninsured counterparts and that poor insured households expect to reduce consumption less in the coming periods than the uninsured poor.…”

Section: Social Insurancementioning

confidence: 99%

“…Previous studies from the region have found that herd size is related to coping strategies (Carter & Lybbert 2012;Janzen & Carter 2013), productivity , livestock mortality rate (Lybbert et al 2004), and willingness to pay (Chantarat et al 2014). To better understand the distribution of impacts, we estimate the expected impacts allowing for variation in the average marginal impact of participation, and variation in participation rates across initial herd size (Appendix G).…”

Section: Heterogeneity In Impacts and Program Interactionsmentioning

confidence: 99%

Index Insurance and Cash Transfers: A Comparative Analysis from Northern Kenya

2014

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Cash transfers and index insurance have become popular interventions by development agencies worldwide. But they operate in radically different ways. In principle, these could offer complementary or substitute means of improving households' well-being, both through direct payments and through induced behavioral change. Surprisingly, little is known about these programs' comparative impacts on participant behavior or well-being, nor about their prospective interactions. This paper exploits four years of household panel data from northern Kenya, where the government launched a Hunger Safety Net Program (HSNP) offering cash transfers just prior to the commercial launch of an index-based livestock insurance (IBLI) product. By exploiting the known selection mechanism behind HSNP participation and the randomization of IBLI extension education and premium discounts, we are able to make novel comparisons of the causal impacts of each type of program among the same population at the same time, which spans a catastrophic drought. We find that both programs benefit participants, but there is no evidence of positive synergies between the two programs. HSNP participation increases the likelihood that a household maintains mobility, an important pastoral production strategy, and improves child health, as indicated by a mid-upper arm circumference (MUAC). IBLI coverage increases expenditures on livestock health services, milk production, MUAC, and income per adult equivalent. Standardizing the estimated benefits by total program costs reveals that the two programs perform comparably, while from a marginal cost perspective the IBLI program has impacts per unit of expenditure at least an order of magnitude greater than HSNP.JEL CODES: D60, I38, O00

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After the Drought: The Impact of Microinsurance on Consumption Smoothing and Asset Protection

Cited by 54 publications

References 5 publications

Adoption and impact of index-insurance and credit for smallholder farmers in developing countries

Adoption and impact of index-insurance and credit for smallholder farmers in developing countries

Review of Pilot Projects on Index-Based Insurance in Africa: Insights and Lessons Learned

Index Insurance and Cash Transfers: A Comparative Analysis from Northern Kenya

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