Robust Decision Making for Sustainable and Scalable Drought Index-Based Microinsurance in Ethiopia: Reducing Weather Related Disaster Risk With Rural Agro-Insurance

Climatic and socio-economic vulnerability pose significant challenges to development, often requiring large-scale solutions to overcome. Indexbased microinsurance for weather risk transfer is one potential element of sustainable and scalable management solutions. Agent-partner microinsurance models are particularly attractive since they can be distributed as low-cost products on an individual basis in remote areas. Loan-bundled index products can also support access to microcredit as a form of collateral that mitigates weather-related default. An agent-partner, index-based microinsurance product design was explored as a risk management tool for drought in Ethiopia. This research used scenario-based computer modeling and qualitative interviews to test the supply and demand-side sustainability of index products. Robust decision methods were used to consider uncertainty in the estimates of product design and financial sustainability. Model structure and inputs were informed by commercial product designs in India, and the earliest stages of pilot study work in the Tigray region of Ethiopia, undertaken by the HARITA (Horn of Africa Risk Transfer for Adaptation) project involving over a dozen partner organizations coordinated by Oxfam America.1 The modeling compared the financial sustainability of both standalone and loan-bundled microinsurance products. Interview work with farmers and potential suppliers assessed opportunities and tradeo↵s of products. Overall results indicate that practical recommendations for implementing an agent-partner model in Ethiopia include the need to: (i) improve index quality for more robust risk assessments (ii) consider initially o↵ering standalone microinsurance products with established