Index Insurance for Agricultural Transformation in Africa

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