Environmental shocks are drivers of poverty as well as a fact of life in many rural areas of the developing world. In the developed world, agricultural insurance provides protection from such calamities. But conventional insurance products have not reached many rural households in developing countries due to the high costs of gathering information relative to the size of policies demanded and well-known moral hazard and adverse selection issues that complicate product design and pricing.
Recently, there has been much excitement around the use of index-based insurance as an alternative to conventional insurance products that may extend the rural poor’s access to formal insurance coverage in developing countries.
Nathan Jensen is a Postdoctoral Associate at Cornell’s Dyson School who is working with International Livestock Research Institute (ILRI).