Remote sensing data for managing climate risks: Index-based insurance and growth related applications for smallhold-farmers in Ethiopia

Abstract

a b s t r a c tThe aim of most index-based insurance programs is to act as a social security mechanism and to provide defense against social and financial exclusion for people whose existing coping strategies are failing. For such schemes, insurance payouts do not depend on the individual losses but on an index which serves as a proxy for the losses. As proposed in this paper, also remote sensing data can be used for index-based insurance which gives additional advantages in comparison to traditional on-ground based indexed instruments. Furthermore, distinguishing between a promotion as well as protection level within such schemes is beneficial from a supply as well as demand side perspective and we suggest an approach how both can be simultaneously introduced within a remote sensing index based insurance framework. The applicability and usefulness of the approach is tested for smallhold farmers in North Shewa, Ethiopia. It is found that the use of remote sensing data is indeed a possible alternative to traditional weather based micro-insurance schemes which offers new ways to tackle current problems of such schemes from a supply side as well as demand side perspective.

Determinants of uptake and strategies to improve agricultural insurance in Africa: a review

“…In addition to the frequency of payouts, their timing also matters. Optimising remote sensing data for instance and providing earlier payouts could allow vulnerable farmers to utilise mitigation strategies such as alternative forage sources for livestock (Vrieling et al, 2016) or access to food to prevent farmers from falling below the minimum food requirements (Hochrainer-Stigler et al, 2014). Vrieling et al (2016) showed that payouts made between one to three months before the onset of the drought would give farmers more time to optimise protective alternatives.…”

“…To capture the entirety of insured peril basis risk, insurance product development might consider using multiple sources and types of data to better explain both the production risk and multiple dimensions of possible losses (Wang et al, 2013). While indices have always been constructed by single variables such as remotely sensed vegetation or rainfall or temperature data (Hochrainer-Stigler et al, 2014;Vrieling et al, 2014;De Oto et al, 2019), more recently, new variables such as soil moisture have shown promise in indices (Enenkel et al, 2017(Enenkel et al, , 2019Von Negenborn et al, 2018). Comparing index insurance based on a rainfall index and an evapotranspiration index, Von Negenborn et al (2018) found that the rainfall-based index underestimates the effect of weather on the risk of repaying agricultural credit, especially during harvest months.…”

Characteristics of Transformational Adaptation in Climate-Land-Society Interactions

“…In the current dominant narrative amongst climate policy and climate researchers, risk is characterized as resulting from a combination of hazardous events (often extreme events such as storms, floods, extreme heat), exposure of physical assets such as infrastructure, and vulnerability of human systems [15][16][17][18]. The way in which climate risk is described through the Intergovernmental Panel on Climate Change (IPCC) reports has, however, varied over time.…”

Climate Change Adaptation and Financial Protection

“…Careful design of the index can help to calibrate payments to potential losses. Technological innovation, in particular the use of remote sensing, has potential to provide geographically detailed information in the absence of weather stations (Hochrainer-Stigler et al, 2014).…”