Drylands / DRYLANDS-CRP / East Africa / Ethiopia / ILRI / Insurance / Kenya / Livestock / SLS

Does index insurance make people feel better off?

Uninsured risk exposure and the experience of uninsured shocks in low-income rural communities cause serious welfare losses and distort behaviors, potentially even resulting in poverty traps. However, conventional insurance products are routinely unavailable due to moral hazard and adverse selection problems, as well as high transaction costs in infrastructure-poor areas.

Index insurance products are cheaper and more suitable alternatives in these environments. As a result, there has been a significant push to expand index insurance offerings in the developing world over the past decade. But, there is little empirical evidence demonstrating that index insurance generates welfare gains households that purchase policies

As a result, there has been a significant push to expand index insurance offerings in the developing world over the past decade. But, there is little empirical evidence demonstrating that index insurance generates welfare gains households that purchase policies. Indeed, the low uptake of index insurance products introduced across a range of countries hints that many prospective buyers believe index insurance does not deliver welfare gains

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Kibrom Hirfrfot is a PhD candidate at Cornell’s Dyson School.

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