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agricultural insurance

Whether weather….and other issues in indexed insurance

This post is part of our Closing the Gap: Financial Inclusion blog series, which shares the views of selected experts and practitioners on different financial inclusion topics.

Crop insurance can improve the lives of farmers, who make up the majority of the world's poor. (Credit: Mukul Soni, Flickr Creative Commons)

How do you insure hundreds of millions of small farmers spread over many developing countries? There is no easy answer. Individual insurance would entail assessing crop yields in millions of farms within the short harvest windows – a virtually impossible task. And even if this were possible, costs would be prohibitive and data quality, a significant issue.

Yet the importance of finding a solution cannot be underestimated. First, farmers make up the majority of the world’s poor. With high dependence on rain-fed cultivation, agriculture is risky. Mitigation of those risks is critical to stabilizing the income of poor farmers. Otherwise, a crop failure could erode savings, lead to inability to service crop loans, push farmers into a vicious debt trap as they are forced to borrow from moneylenders and in extreme cases, lead to starvation or even worse.