The Impact of Commercial Rainfall Index Insurance: Experimental Evidence from Ethiopia

We present the results of an experiment introducing commercial rainfall index insurance into drought-plagued farming cooperatives in Amhara State, Ethiopia. We introduce a market-priced rainfall deficit insurance product through producer cooperatives, and test a number of potential ways to kick-start private demand. Takeup of the insurance at market prices is very low, between .5% and 3% across seasons, but a low-cost promotion at baseline increases willingness to pay for multiple seasons. When we use a randomized experiment to distribute small free insurance contracts to farmers, 39% of subsidized individuals enroll but this fails to stimulate input use, yields, or income, and nor does it enhance demand in subsequent seasons. Our experience in interlinking credit with insurance shows that while serious logistical challenges need to be overcome, real demand can exist for state-contingent credit in this context.