Index Insurance: Using Public Data To Benefit Small-Scale Agriculture

This paper highlights the importance of public data for the development of more efficient and sustainable risk management schemes, such as index insurance, for smallholder agriculture. Three case studies of index insurance-catastrophic weather insurance in Mexico, satellite-based insurance for pastoralists in Kenya, and a hypothetical area-yield insurance scheme in Ecuador-are briefly analyzed in terms of the data and type of index used, the way the contract was designed and implemented (or simulated) and the impacts of the insurance on investment, nutrition and income smoothing. The increasing opportunity to use big data for improving and expanding index insurance is also addressed. The analysis suggests that the strong potential for index insurance to improve the welfare of small farmers represents a clear justification for increased government investment in the collection of the types of data that can facilitate the expansion of index insurance markets.