Agricultural insurances based on meteorological indices: realizations, methods and research challenges

In many low-income countries, agriculture is mostly rainfed and crop yield highly depends on climatic factors. Furthermore, farmers have little access to traditional crop insurance, which suffers from high information asymmetry and transaction costs. Insurances based on meteorological indices could fill this gap since they do not face such drawbacks. However full-scale implementation has been slow so far. In this article, we first describe the most advanced projects that have taken place in developing countries using these types of crop insurances. We then describe the methodology that has been used to design such projects in order to choose the meteorological index, the indemnity schedule and the insurance premium. We finally discuss for the main research issues. In particular, more research is needed on implementation, assessment of benefits, how to deal with climate change, spatial variability of weather and interactions with other hedging methods.