The main goal of this research is to compare those two alternatives – conventional versus index insurance – in the specific context of Ecuador. Ecuador offers a particularly interesting context due to several reasons. First, starting in 2010, the government of Ecuador introduced the policy of strengthening the agricultural insurance market for small and medium farmers through subsidies to the premium of a conventional insurance contract. This policy created the possibility of gathering data that would allow us to evaluate the functioning of conventional insurance. Second, besides the agrarian census (year 2000), starting in year 2002 Ecuador counts with a national survey of agrarian production (ESPAC) which has allowed us to design a “shadow” area yield index insurance contract. We compare the hypothetical functioning of this “shadow” contract with the real functioning of the conventional insurance for the years 2011 and 2012 for a sample of rice and feed corn producers in three cantons of the country. The main criterion that we use for the comparison is the efficiency of the insurance contract in stabilizing income through the transfer of indemnity payments to farmers who suffered larger losses. Research results suggest that area yield index insurance could offer a viable alternative and, in some contexts, with better effective protection for small Ecuadorian farmers than the conventional insurance.
Paper: Index Insurance: Innovative Financial Technology to Break the Cycle of Risk and Rural Poverty in Ecuador