Microinsurance Aspects in Agriculture

Publication Date: 26 Oct 2007
Published by: Munich Re Foundation and CGAP Working Group on Microinsurance
Document Type: Paper

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This paper examines the potential of agricultural index-based insurance schemes for low-income households.

This paper examines agricultural microinsurance, focusing on how low-income farmers can be indemnified for agricultural losses due to severe weather conditions.

The paper states that:

• The wide range of risks in agriculture requires a comprehensive risk management strategy including insurance solutions and risk prevention measures such as crop diversification and asset accumulation.
• It is very important to assess the farmer's risks and the appropriate coping strategies and instruments.
• Although demand for microinsurance solutions for small farmers in developing countries is great, the supply side faces constraints and challenges that prevent the private sector from becoming involved in these solutions.
• With the introduction of index based insurance products, risk layering and pooling strategies, new developments in the agricultural insurance arena have triggered new initiatives and pilot projects.

The paper concludes that:

• A clear definition of the target group of small and poor farmers is still missing in the agricultural insurance sector in developing countries;
• In agriculture, land tenure and size of farms determine the status of a farmer;
• Further research is needed to explore the determining factors of poverty among farmers;
• It is not necessary to define worldwide thresholds, but to compile all the relevant factors so that every country can establish its own definition of poor farmers.