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WII insurance (Barriers to insurance markets (Legal infrastructure
• Lack…
WII insurance
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Benefits
Limited operational costs/lower premiums
• No need for damage assessments of affected crops (Leblosis & Quirion 2013 p1)
Quick payment of indemnity (provides weather data process is efficient) (Leblosis & Quirion 2013 p1)
When combined as package in loans it can reduce the potential moral hazard and adverse selection with overall effect of reduce defaults which lowers screening/monitoring costs of insurers and lowering loan prices (see Dercon and Christiaensen 2011 from Leblosis & Quirion 2013 p7)
Disadvantages
Basis risk:
correlation between crop yield and the meterological index (i.e. weather) is not always perfect meaning element of unreliability. Caused by:
• field specific features (e.g. soil quality)
• external events (such as pests etc.)
• spatial variability of wether events (i.e. weather station located far away)
(Leblosis & Quirion 2013 p1)
Complexity:
• WII insurance companies can use a variety of methods to calculate estimate yield losses which are often complex. The effect of this depands on target/customer audience. If famrers such complexity could reduce trust and therefore uptake whereas if aimed at a financial instituitions there maybe more willingness to except complex products (Leblosis & Quirion 2013 p4)
Data availability:
• some indicies can create better estimations of yield impact but data-sets/infrastructure not present
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Impacts of WII
Uptake of risker growing strategies through:
• Increased fertilizer use (Leblosis & Quirion 2013 p6)
• Adapting planting portfolio for higher value crops (TOm's thoughts)
• Purchasing/adpting new technoliges (Leblosis & Quirion 2013 p6)
Less reliance on informal mechanisms
• Climate impacts often cause covariate risks effecting mass populations and make informal arranfgments redundent (Fuchs and WSolff 2016)
• Less reliance on depletion of asests which can often be heavilyt devalued in crisis contexts by excessive market demand (Fuchs and WSolff 2016)
Challenges for WII
Climate change
• The unpredictable impact of climate change (global and local) and accounting for this in such products/indemnity payment methodologies (Leblosis & Quirion 2013 p6)
Informal coping/risk managment strategies
• Risk coping; it could reduce informal coping networks and socail captial with less reliance on private transfers from communitiy, friends and family (Leblosis & Quirion 2013 p7)
• Insurance could replace other individual risk management strategies such as self-insurance mechanisms (savings, assets accumulation etc) or crop diversification/intercopping (Leblosis & Quirion 2013 p7)
• Crop insurnace mechanisms are easily substituted with informal/traditional mechanisms so could impact on uptake (Leblosis & Quirion 2013 p7)