The Potential for Scale and Sustainability in Weather Index Insurance

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CASE STUDY 3
INDEX INSURANCE IN ETHIOPIA – THREE PILOTS
The project also worked on ways to overcome limited weather data for the region. IRI
led the exploration of new techniques to enhance sparse local datasets through a
combination of satellite data, rainfall simulators and statistical tools for incorporating
information from stations nearby. Satellite data will also be used to better understand the
correlation between rain gauges and losses on specific farms. With this information, the
project may be able to reduce basis risk by determining the maximum distance between
farm and rain gauge at which precipitation measurement is still valid.
An advantage of this project is that it builds on established relationships. Oxfam has had
a presence in Ethiopia since the 1960s and thus has long-standing networks of trust and
knowledge of the country. These relationships, along with Oxfam’s history of high-profile
successes in other development projects, have paved the way for resilient partnerships and
for local partners’ willingness to experiment with the ‘radical’ solution of index insurance.
Other partners are also highly respected. REST has an outstanding track record in highimpact
development, and communities place an unusually high degree of trust in it
following the crucial assistance it provided to Tigray during and after the Ethiopian civil war.
The HARITA project ties in with Ethiopia’s PSNP social protection programme. At the
federal level, PSNP reaches approximately 8 million vulnerable people. It provides payments
to participating households in exchange for labour to build community assets such as waterharvesting
structures. Such households tend to be chronically food- and resource-insecure,
and they are likely to be unable or unwilling to pay cash for insurance premiums. However,
they are interested in managing the risk within their livelihood strategies.
HARITA is exploring ways to build on the PSNP model by enabling farmers to pay
insurance premiums in kind, rather than in cash. Under the programme, liquidityconstrained
farmers would have the option of working a few additional days in exchange
for an insurance voucher that protects them against deficit rainfall. Oxfam America’s focus
group interviews with farmers in communities across the country suggest that many more
people would be willing to purchase insurance if the premiums could be paid for through
their labour. 28
Overall characteristics of the sector in Ethiopia
Weather data and infrastructure
There are approximately 600 weather stations in Ethiopia, many with as much as 30 years
of historical data. However, inconsistencies in data collection, storage and management
have left major gaps.
NMA provides data through its weather bulletins, which are accessible directly from the
agency. 29 Only 17 weather stations are 24-hour stations, reporting every three hours to the
Global Telecommunication System of the World Meteorological Organization (WMO),
communications permitting. An additional 50-60 stations report daily to the Addis Ababa
office. These are Class 1 stations: fully equipped, meteorological observing stations,
recording pressure, temperature, relative humidity, wind speed and direction, rainfall,
28 Victor, M., and S. de Messieres. 2009. A farmer-centric approach in Ethiopia. In Hellmuth et al. (2009).
29 www.ethiomet.gov.et.