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Abstract / Description
Index-based insurance is increasingly recognized as an important risk management tool against the impacts of climate change and variability. Index-based insurance differs from traditional insurance in that compensation is made based on the losses of a specific client. The insurance avoids the costs of assessing and validating policyholders’ losses and minimizes moral hazard and adverse selection problems, as policyholders cannot influence the distribution of ex ante payments and the historical distribution of the index is observable for both the insurer and the insured Farrin 2012). For these reasons, index-based insurance offers a potentially cost-effective means of managing smallholder production risks and has the potential to strengthen resilience by mitigating the risk of loss and debt. However, the prevalence of index-based insurance is still low among farmers in developing countries. Is this the case in East Africa? This study sought to answer the question by evaluating the status of index-based crop insurance services in Kenya, Tanzania and Uganda. The study was conducted as a requirement for the Climate Resilient Agribusiness for Tomorrow (CRAFT) project, under strategic goal four which aims to increase incomes for small farmers and small and medium-sized enterprises (SMEs) through increased adoption of smart climate practices and technologies.
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