Ethiopia – Can insurance reach the extreme poor?

We have argued that insurance can benefit farmers by reducing their exposure to losses from natural perils such as drought or flood. But can it also serve the extreme poor?

This was one of the challenges that we faced in 2008 when we collaborated with Oxfam America on creating a climate change resiliency pilot in Adi Ha, Tigray, Ethiopia. The pilot project sought to introduce an holistic risk management package to farmers, combining risk reduction, drought insurance and credit. A key element was to understand how insurance could support access to credit and loans for investment in irrigation, seeds and soil enrichment and reduce the risk of losing income if a crop fails.

Output from the pilot project is encouraging. In May 2009, approximately 600 farmers attended the enrolment activities, and 200 households signed up for the package, representing roughly 20% of the village. 65% of enrollees were participants in Ethiopia's Productive Safety Net Program (PSNP is a federal cash-for-work program that serves 8 million chronically food insecure households in Ethiopia). 

The project has overcome some of the product design barriers, engaging clients in product development, and creating a scalable in-kind premium payment model, whereby families obtain insurance through their labor. The first season of results has demonstrated this model can reach very poor farmers, most of whom were previously considered uninsurable. We are in active discussions with Oxfam America and other partners on how to scale such solutions for a broader community. This remains a pilot project, so it is also important that the on-going performance of the index weather insurance product is monitored and assessed for all the parties involved.