Targeting weather insurance markets

Anita Mukherjee, Shawn Cole and Jeremy Tobacman

Journal of Risk & Insurance, 2021, vol. 88, issue 3, 757-784

Abstract: The suitability of insurance products often depends greatly on individual circumstances. This paper examines the challenges of heterogeneity in a relatively new product, weather‐indexed insurance. This index insurance product has been launched in over a dozen countries, with the goal of enabling households engaged in agricultural activity a means to manage risk. Using data from a large‐scale field experiment, we build and calibrate a model which accounts for household investment decisions, including the scope for self‐insurance via labor markets to (risky) wage work. Our results show that insurance is most valuable to households with reduced access to wage labor, or to those who face wages that are sensitive to rainfall risk. These findings have important implications for areas where index insurance is most effective.

Date: 2021
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