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Policy for implementation of Index Based Weather Insurance revisited: the case of Nicaragua

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  • Banerjee, Chirantan
  • Berg, Ernst

Abstract

International development organisations, through partnerships with local insurance companies, have been promoting weather index based insurance (WIBI) in developing countries. Due to lower operational costs, they expect shorter pay-off period, often overlooking high initial design costs. Experiences however show high post-pilot mortality of these programmes. Literatures report lack of insurance participation. We propose lack of push from insurance providers as an additional factor. To verify, cash flows of a Nicaraguan groundnut based WIBI and a comparable but hypothetical named peril insurance are simulated against 80 scenarios. Additionally, a test of stochastic dominance of their estimated Net Present Values show that WIBI take comparatively longer to pay-off yielding lower returns with considerable risk. WIBI, given its advantages is undoubtedly an efficient agricultural risk management tool. Therefore, to make it sustainable, long-term pilots and technical assistance is required until the product pays-off and yield profits for insurance providers.

Suggested Citation

  • Banerjee, Chirantan & Berg, Ernst, 2012. "Policy for implementation of Index Based Weather Insurance revisited: the case of Nicaragua," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122448, European Association of Agricultural Economists.
    • Handle: RePEc:ags:eaa123:122448
    DOI: 10.22004/ag.econ.122448
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    References listed on IDEAS

    as
    1. Joshua D. Woodard & Philip Garcia, 2008. "Basis risk and weather hedging effectiveness," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 68(1), pages 99-117, May.
    2. Edwards, William M., 2003. "Managing Risk with Crop Insurance," Staff General Research Papers Archive 10261, Iowa State University, Department of Economics.
    3. Hogarth, Robin M & Kunreuther, Howard, 1989. "Risk, Ambiguity, and Insurance," Journal of Risk and Uncertainty, Springer, vol. 2(1), pages 5-35, April.
    4. Banerjee, Chirantan & Berg, Ernst, 2011. "Efficiency Of Wind Indexed Typhoon Insurance For Rice," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114240, European Association of Agricultural Economists.
    5. Martin Odening & Oliver Musshoff & Wei Xu, 2007. "Analysis of rainfall derivatives using daily precipitation models: opportunities and pitfalls," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 67(1), pages 135-156, May.
    6. Jerry R. Skees, 2008. "Challenges for use of index‐based weather insurance in lower income countries," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 68(1), pages 197-217, May.
    7. Barnett, Barry J. & Barrett, Christopher B. & Skees, Jerry R., 2008. "Poverty Traps and Index-Based Risk Transfer Products," World Development, Elsevier, vol. 36(10), pages 1766-1785, October.
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    Cited by:

    1. Isaboke, Hezron Nyarindo & Qiao, Zhang & Nyarindo, Wilckyster Nyateko & Ke, Wang, 2016. "Explaining The Perception Of Smallholders Towards Weather Index Micro-Insurance Alongside Risks And Coping Strategies," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 4(4), pages 1-19, October.

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    Keywords

    International Development; Risk and Uncertainty;

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