WEATHER BASED INDEX INSURANCE AND ITS ROLE IN AGRICULTURAL PRODUCTION

Abstract

Purpose: Insurance not only is a shock absorber for farmers and other actors in the agricultural value chain, but it also enables access to credit and hence is an integral part of financial inclusion, and it enables/protects investments in better inputs and technologies which increase productivity. The different forms of insurance also reduce the government's budget exposure to agricultural risks. Crop insurance could incentivize farmers to increase their input use but indemnity-based crop insurance programs are plagued by market failures. The purpose of this research work was to examine weather-based index insurance and its role in agricultural production. This study highlights the key opportunities for weather-based index products and bring further clarity to how the use of weather-based index insurance can help to transform agriculture production. Methodology: Relevant book references and journal articles for the study were identified using Google Scholar. The inclusion criteria entailed papers that were not over five years old. Findings: This study found that the uptake of weather-based index insurance is positively and significantly associated with the use of chemical fertilizer and improved seeds, and also with crop yield. The study concludes that upscaling of weather-based index insurance programs may help to spur agricultural development in agricultural production. Recommendations: The study recommends that weather-based index insurance be linked to an existing development program or other market opportunities to provide added value to the client. As a stand-alone product, weather-based index insurance may be seen as an unnecessary cost and have little demand from farmers who face a variety of risks in addition to weather risks. The study also recommends partnership between weather-based index insurance programs and complementary agricultural development or risk management programs. NGOs in particular could play an important and independent role in the extension of information to farmers, possibly in conjunction with official extension services.