Paper: Index-based Insurance: Lottery Ticket or Insurance?

Index-based insurance continues to be promoted as an effective approach for offering formal insurance to rural households in developing countries while little has been done to assess the risk coverage provided by such products. Products with poor quality could increase risk—in a manner very similar to a lottery ticket—rather than reduce it— as the term ‘insurance’ implies. Currently, there is little empirical evidence to support the insurance label used by designers, promoters and vendors of index insurance. The Index-Based Livestock Insurance (IBLI) product, piloted in northern Kenya and southern Ethiopia since early 2010, is implemented with an accompanying research program that allows for a first-ever analysis of index insurance quality in a developing country context. This brief draws on an analysis of the IBLI product in Marsabit by Jensen, Barrett and Mude (2015).