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

Chirantan Banerjee and Ernst Berg

No 122448, 123rd Seminar, February 23-24, 2012, Dublin, Ireland from European Association of Agricultural Economists

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.

Keywords: International Development; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 17
Date: 2012-02-23
New Economics Papers: this item is included in nep-agr, nep-env and nep-ias
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:eaa123:122448

DOI: 10.22004/ag.econ.122448

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