A randomized controlled trial (RCT) in Burkina Faso showed that farmers who purchased insurance made significantly more investments for higher future income despite implementation challenges, adding evidence for the high potential of agricultural index insurance for development.
Households have no way to tell whether an index insurance contract will leave them worse off than having no insurance at all. A Minimum Quality Standard (MQS) for index insurance would help to secure vulnerable households and to safeguard markets for future higher-quality contracts.
A resilience-based approach to social protection that includes insurance is the only sustainable way to manage poverty in the long-term. However, even this approach will fail if worst-case climate change scenarios come to pass.
The study on a hypothetical area yield index insurance contract in Ecuador found that for most farmers in the sample, the area yield index insurance would have performed equally well or much better at the same dollar-for-dollar cost compared to the existing conventional insurance contract.
The typical challenges of basis risk and low uptake have plagued index insurance products for years, but AMA Innovation Lab researchers are crafting solutions by designing innovations around the structure of the insurance contracts.
Improving index insurance products, contract design, marketing and policy can contribute to delivering on its promise of promoting independence, prosperity and resilience among these smallholder farmers.
Because the VISA Model uses savings groups to aggregate small purchases into one larger purchase, and to pass on to the insurance company, the operating costs of the company are reduced and the sales increased.
On average, AMA Innovation Lab researchers find that after the drought, insurance leads to a 36 percent decrease in sales of remaining livestock, and a 25-percent reduction in household meal consumption.