Index Insurance for Agricultural Transformation in Africa

Over the past two decades, researchers, practitioners, and policy-makers have shown great interest in using index insurance to manage agricultural production risk in order to promote technical transformation of agriculture in the developing world. Unlike conventional agricultural insurance, which indemnifies policyholders for verifiable production losses arising from multiple perils, index insurance pays policyholders based on the observed value of a specified “index” variable, such as rainfall, that is highly correlated with losses. Index insurance is less susceptible to the structural problems that have rendered conventional agricultural insurance too expensive and financially un-sustainable for the developing world. Index insurance, however, offers less efective individual risk protection than conventional insurance and faces non-trivial challenges for sustainable implementation. This article summarizes lessons learned from index insurance projects undertaken in sub-Saharan Africa since 2000 and points the way forward for the use of index insurance to support African agricultural development in the 21st century.