Rainfall Index Insurance
RCTClinical Trial
Smallholder agricultural producers in rainfall-dependent regions face severe weather risk, which forces them into low-risk, low-yield production strategies due to incomplete risk-sharing markets [1-3].
Picture this
Think of it like a weather thermometer attached to an automated cash register; if rain falls below a preset mark on the gauge, money is automatically paid out without needing an inspector to visit the farm to check damaged crops [4, 5].
What the evidence says
Insurance provision increased the proportion of farmers planting high-return cash crops by 6 percentage points (a 12% relative increase, p=0.041), generating a 27% increase in land area sown for cash crops [9, 10].
- Who was studied
- N = 1,479 small agricultural firms across 45 villages in Mahbubnagar and Anantapur districts, Andhra Pradesh, India [6].
- How
- Randomized Controlled Trial (RCT) assigning 10 ICICI Lombard rainfall insurance policies (market value ~Rs. 1,000) to a treatment group versus an equal actuarial cash promise (Rs. 350) to a control group [7, 8].
What to do
Offer retail rainfall index insurance linked to local rain gauges to smallholders prior to monsoon onset to enable investment in higher-yielding, higher-risk crops [2, 7].
From the source
"We find that the provision of insurance induces farmers to shift production towards higher-return but higher-risk cash crops, particularly amongst more-educated farmers." [1]
How Does Risk Management Influence Production Decisions? Evidence from a Field Experiment