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Innovations in Index Insurance for the Poor in Lower Income Countries

Published online by Cambridge University Press:  15 September 2016

Jerry R. Skees
Jerry R. Skees*
Affiliation:
Department of Agricultural Economics at the University of Kentucky
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Abstract

This article focuses on innovation in weather insurance designed to fit the special circumstances of the poor in lower income countries where rural and agricultural financial markets are largely underdeveloped. Index insurance is an innovation that circumvents many of the fundamental problems that hamper the development of insurance for weather risks in lower income countries. With index insurance, payments are made based upon an objective and independent index that serves as a proxy for significant losses to crops, livestock, or other property. For example, the index can be based upon extreme rainfall measures that create either drought or flooding. Weather stations or even satellite imagery coupled with computer models can be used to create reliable “indexes” as the basis of payments. This article reviews this innovation by providing the background for its development and the motivation for using the innovation for the poor.

Keywords

index insurancefinancial innovation for the poorweather insurancecorrelated riskpoverty trapex ante risk management
Type
Invited Papers
Information
Agricultural and Resource Economics Review , Volume 37 , Issue 1 , April 2008 , pp. 1 - 15
Copyright
Copyright © 2008 Northeastern Agricultural and Resource Economics Association 

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