Harita project-report-horn of africa

RURAL RESILIENCE SERIES

Horn of Africa Risk
Transfer for Adaptation
HARITA project report: November 2007—December 2009

Contents
Acknowledgements ……………………………………………………………… 2

Abbreviations …………………………………………………………………… 3

Executive summary ……………………………………………………………… 4

Background ……………………………………………………………………… 5

Rationale ………………………………………………………………………… 6
Risks of climate change ……………………………………………………………………………… 6
The consequences of inadequate coping mechanisms ………………………………………… 7

The HARITA model of managing climate risk ………………………………… 10
Risk reduction: Minimizing vulnerability …………………………………………………………… 11
Risk transfer: Weather index insurance …………………………………………………………… 12
Prudent risk-taking: Credit …………………………………………………………………………… 14

How HARITA complements other risk management efforts ………………… 15
Macro level. …………………………………………………………………………………………… 15
Community level. ……………………………………………………………………………………… 15

Innovations: Laying the foundation for demand-driven index insurance …… 17
How to integrate insurance with risk reduction …………………………………………………… 17
How to engage farmers meaningfully in insurance design ……………………………………… 17
How to overcome weather data barriers …………………………………………………………… 18
How to increase insurance take-up by farmers …………………………………………………… 18

Pilot results ……………………………………………………………………… 19

Challenges………………………………………………………………………… 21
Inefficient methods for gathering information ……………………………………………………… 21
Voluntary donation to farmers for feff yield loss in 2009 ………………………………………… 21

Conclusion ………………………………………………………………………… 22

Appendix I: Major partners and institutional roles …………………………… 24

Appendix II: Summary of pilot activities ……………………………………… 26

Appendix III: Summary of transacted index …………………………………… 29

Appendix IV: HARITA publications, coverage, and media …………………… 32
Cover: Gebru Kahsay and
his grandson inspect a field
of teff in Adi Ha, Ethiopia.
Endnotes ………………………………………………………………………… 35
Eva-Lotta Jansson /
Oxfam America Bibliography ……………………………………………………………………… 36

Acknowledgements

The HARITA project was made possible thanks to a very large number of people. First and
foremost, we extend our deep gratitude to the hundreds of Ethiopian farmers who gave life to this
undertaking by enthusiastically and generously contributing their time, ideas, and wisdom. We
especially want to recognize Adi Ha’s elected Design Team representatives: Haleka Gebrehiwot
Hagos, Nigsti Kidanemariam, Gebru Kahsay, Taddese Hailesilasie, and Silas Samson. We hope
HARITA results in substantial and long-lasting improvements for the families of Adi Ha and beyond.

Tremendous thanks goes to the staff, board, and interns of HARITA’s official 2007–2009
partner organizations:

• Dedebit Credit and Savings Institution
• Ethiopian National Meteorological Agency
• Goulston & Storrs
• Institute for Sustainable Development
• International Research Institute for Climate and Society at Columbia University
• Mekelle University
• Nyala Insurance Company
• Oxfam America
• Relief Society of Tigray
• Swiss Re
• The Index Insurance Innovation Initiative at the University of California, Davis (UC Davis)
• Tigray Cooperative Promotion Office
• Tigray Regional Food Security Coordination Office
• Weil, Gotshal & Manges
Because so many staff members, board members, and interns were involved at each partner orga-
nization, we regret that we cannot acknowledge each person here. The representatives of these
organizations put in countless hours solving technical puzzles and traveling back and forth to the
field, while overcoming many logistical hurdles.

Degol Entertainment (Ethiopia), the National Bank of Ethiopia, and the Association of Ethiopian
Microfinance Institutions provided invaluable guidance and assistance. In addition, we are grate-
ful to Amie Siebert of Simpson Thacher & Bartlett, Lily Wu of the McKinsey alumni network, and
Sarah Boltwala-Mesina, who contributed long hours to HARITA as expert volunteers. Toon Bullens
of the Micro Insurance Association Netherlands spent an intense week building organizational
capacity in the field, and Woldeab Teshome (Addis Ababa University), Aster Gebrekirstos and
Karthikeyan Muniappan (Development of Humane Action Foundation), and Nicole Peterson (Center
for Research on Environmental Decisions) carried out the critical project feasibility study. Nicole
has continued on and conducted several additional research projects for HARITA, one of which was
carried out jointly with Conner Mullally of UC Davis.

Oxfam America | HARITA project report: November 2007–December 2009 2

The HARITA 2009 pilot was significantly shaped by Pablo Suarez (consultant), Nora Ferm and
Kate Kennedy (John F. Kennedy School of Government, Harvard University), Jillian Dysyznski
(Oxford University), Takeshi Takama (Stockholm Environment Institute), Million Tadesse (Norwegian
University of Life Sciences), and Mekonnen Shiferaw (attorney). Joanne Bayer (International
Institute for Applied Systems Analysis), Koko Warner (United Nations University), Hector
Ibarra (PartnerRe), Ulrich Hess and Mattewos Hunde (World Food Program), and Jerry Skees
(GlobalAgRisk), as well as Joanna Syroka, Erin Bryla, and Carlos Arce (World Bank), assisted with
ideas throughout.

Finally, HARITA’s partners also appreciate the support of the Clinton Global Initiative and the finan-
cial sponsorship of Swiss Re, the Rockefeller Foundation, and Janet McKinley for making it possible
to continue HARITA’s work in 2010.

We extend our sincere apologies and thanks to anyone we inadvertently missed.

Abbreviations

DECSI Dedebit Credit and Savings Institution

GGLM Group guarantee lending model

HARITA Horn of Africa Risk Transfer for Adaptation

I4 Index Insurance Innovation Initiative

IFW Insurance for work

IRI International Research Institute for Climate and Society

ISD Institute for Sustainable Development

MFI Microfinance institution

NMA National Meteorological Agency

PSNP Productive Safety Net Program

REST Relief Society of Tigray

UNDP United Nations Development Program


Executive summary

The Horn of Africa Risk Transfer for Adaptation (HARITA) project is an initiative involving poor
farmers, Oxfam America, Swiss Re, the Relief Society of Tigray, Columbia University’s International
Research Institute for Climate and Society (IRI), Nyala Insurance, Dedebit and Credit Savings
Institution, various agencies of the Ethiopian government, and other partner organizations.
Between November 2007 and December 2009, the HARITA partners designed a climate risk man-
agement package for farmers in the village of Adi Ha, located in Ethiopia’s northernmost state of
Tigray. The project has broken new ground in the field of climate change resiliency and microinsur-
ance by addressing the needs of smallholder producers through an unusual mix of risk reduction,
drought insurance, and credit. Under the HARITA risk management package, insurance comple-
ments disaster risk reduction and long-term, sustainable investments in agriculture.

Although we saw great promise in a handful of prior weather insurance pilots for subsistence
farmers, it was unclear how this new tool could be used at scale in very poor communities that are
far removed from the world of formal financial services and weather measurement infrastructure.
Uptake of weather insurance in prior pilots has been disappointing, partly due to the unfamiliarity of
insurance concepts in poor communities and partly due to underinvestment in demand-driven (as
opposed to supply-driven) products. HARITA’s project partners felt the weather insurance commu-
nity needed (and still needs) to bring this new class of financial products closer to the core interests
of their clients and to develop educational tools to increase farmer understanding.

Our model aims to respond to these concerns by taking a farmer-centric approach to product
development. The project adopted an innovative, holistic approach to risk management, examin-
ing ways to integrate risk transfer (e.g., insurance) with risk reduction (e.g., improved agricultural
practices and conservation activities) and prudent risk-taking (e.g., credit). The project found ways
to overcome technical product design barriers, engage clients meaningfully in product development,
and create a scalable in-kind premium payment model whereby farmers obtain insurance through
their labor.

Our work has been recognized for its innovation in various
international fora, journals, and media, including the Clinton Global
Initiative, Global Risk Forum Davos, the UN Framework Convention
on Climate Change, Nairobi Work Programme, the New York Times,
BBC, Nature, New Scientist, The Guardian, and the Boston Globe.

Before embarking on such a new model of risk management, it was vital to test a transaction in one
area with the full range of institutional players. The first season of results in Adi Ha demonstrated
that the HARITA model can effectively reach vulnerable families, most of whom had once been
viewed as uninsurable.

This report discusses general highlights of the pilot. A detailed technical report by IRI,
“Designing Index-Based Weather Insurance for Farmers in Adi Ha, Ethiopia,” can be accessed
on the IRI website.1


Background

The Relief Society of Tigray (REST), Dedebit Credit and Savings Institution, and Oxfam America
have been working with farmers in Adi Ha for more than a decade. HARITA began in the fall of
2007 with visits to Adi Ha by Oxfam America, International Research Institute for Climate and
Society (IRI) and REST to explore the potential for microinsurance and gauge the community’s in-
terest in a pilot. The following winter, Oxfam America commissioned an independent demand study,
conducted with support from the Micro Insurance Association of the Netherlands and by representa-
The crowd that showed up
tives of the Development of Humane Action Foundation, the Center for Research on Environmental
on enrollment day in Adi Ha. Decisions, and Addis Ababa University. In spring 2008, with farmers’ backing, Oxfam America
Michelle Talukdar / contracted IRI to draft a prototype weather index insurance contract. In July 2008, Oxfam America
Oxfam America and Swiss Re consolidated their collaboration and project implementation began.


Rationale

Risks of climate change
One of the most biodiverse nations on the planet, Ethiopia counts itself as the birthplace of many
animals and crops, including coffee and teff, a staple cereal for the Horn of Africa and an impor-
tant source of amino acids, minerals, and iron. Although rich in contributions to the world’s flora
and fauna, Ethiopia is poor in development and food security. According to the 2009 Human
Development Report of the UN Development Program (UNDP), Ethiopia ranked 171 out of 182
countries in the annual human development index ranking (UNDP, 2009).

Roughly 85 percent of all Ethiopians are engaged in smallholder, rainfed agriculture, and climate
change poses an especially grave threat. Arguably, drought is the number one risk, not only for
rural Ethiopians, but also for the country overall, as evidenced by the fact that the country’s macro-
economic growth closely mirrors increases and decreases in precipitation (see Figure 1).

Figure 1. Rainfall
and gross domestic
product (GDP) growth
in Ethiopia
Source: IGAD and ICPAC (2008)

According to a variety of scientific studies, climate change could lead to extreme temperatures,
extraordinary rainfall events, and more intense and prolonged droughts and floods in Ethiopia
(IGAD and ICPAC, 2008). These projections come as particularly bad news when considering that
Ethiopia already finds itself under significant climate stress, with more than 90 districts (in excess of
2 million households) already drought-prone. Climate change could greatly exacerbate this already
difficult situation and have numerous effects on economic growth, livelihoods, and health, as well
as the rate and intensity of disasters. Without concerted and substantial investments by public and
private actors, the impact of these changes will fall disproportionately and tragically on people liv-
ing in poverty, potentially erasing decades of human development and stretching the humanitarian
response system beyond capacity.


The consequences of inadequate coping mechanisms
Climate change entails both shifts in average climate conditions (e.g., mean annual temperature,
cumulative precipitation levels, and onset and cessation of the rainy season) as well as increased
weather variability (e.g., more frequent dry spells and flash flooding). Given enough time and
resources, farmers can adapt to new, average conditions. For instance, in the face of rising aver-
age temperatures, they can select more heat-tolerant crops, improve their management of water
resources, and move planting dates. Such interventions can substantially reduce the risks posed
by the relatively predictable (albeit new) gradual trends.

However, when it comes to unpredictable and extreme weather, effectively reducing risk is a more
complicated process. For these types of threats, the combination of risk reduction and risk transfer
(e.g., insurance) is key. Insurance can play a critical and complementary role to risk reduction in
facilitating rapid recovery from low-frequency but severe climatic shocks, like prolonged droughts.
Unfortunately, the Ethiopian insurance industry is woefully unprepared to help. Almost exclusively
serving large, urban industry, formal Ethiopian insurers count fewer than 300,000 clients out of the
country’s 79 million inhabitants (Chamberlain and Smith, 2009). While insurers recognize their risks
are overly concentrated in urban centers, they struggle to identify cost-effective means to reach the
majority of Ethiopians, who are predominantly poor and financially illiterate.

The lack of formal insurance not only leaves a gap in farmers’ risk management strategies, it also
undermines prudent risk-taking. In general, Ethiopia receives average to above-average rainfall in
60 percent of all years (Hess et al., 2006). If farmers were able to take “smart risks,” the gains re-
sulting from credit-based investments made during wet years could be much larger than the losses
resulting from failure during occasional dry years. Without the ability to transfer risk and given the
extreme levels of impoverishment in Ethiopia, it is perhaps unsurprising that a 2007 study by the
International Food Policy Research Institute showed that more than 50 percent of Ethiopian farmers
were “severely or extremely risk averse” in contrast to their counterparts in Asia and other parts of
Africa, who exhibited a moderate-to-intermediate risk aversion (Yesuf and Bluffstone, 2007).

“Without insurance, poor farmers who experience drought might run
through all their savings, fall into debt, or sell their livestock and other
valuables—often to ruinous results. In contrast, insured farmers will
be more resilient to those shocks. They’ll be in a better position to
take out small loans that could help them make big improvements
in their next harvest—loans for things like high-yield seeds.”
—Mengesha Gebremichael, microinsurance officer at the Relief Society of Tigray


Risk aversion affects both the supply and demand for credit:

Demand—Farmers in Tigray:

• Fear loan default for reasons beyond their control (e.g., drought).
• Face legal and social penalties associated with loan default.
Supply—Moneylenders (formal and informal) are aware of the risks of lending to smallholder pro-
ducers and may extend loans on unattractive terms, although often they refuse to lend at all (Stiglitz
& Weiss, 1981; Adams et al., 1984; Boucher, 2002).

These credit constraints may seriously hinder climate change adaptation. Based on data collected
in Ethiopia, one recent study “confirms a positive relationship between the level of adaptation and
the availability of credit” (Deressa et al., 2008). According to the study, “In particular, access to
credit increases the likelihood that farmers will employ soil conservation methods, change planting
dates, and irrigate”.

Gebru Kahsay in the fields Given credit’s enormous value as a financial service, Ethiopia has included it in its national Poverty
near his house in Adi Ha, Reduction Strategy Paper 2 (IMF, 2007), making it one of the few countries in the world to do so
Tigray. He is a farmer and
(Microned, 2008). The Ethiopian government established a role for microfinance institutions (MFIs)
a participant of the teff
with a legal and policy framework in 1996 (Amha, 2000), designating them as key institutions in
crop microinsurance pilot
in his community. the country’s development strategy. The establishment of the MFI industry helped many poor
Eva-Lotta Jansson / households—both rural and urban—access credit that had been virtually unavailable before
Oxfam America their establishment.


While the Ethiopian government has admirably pushed its microfinance sector to serve agricultural
portfolios, the threat of climate change could make it much more difficult to meet this goal sustain-
ably unless robust risk management is put into place. Microinsurance will therefore likely constitute
a critical element in overcoming farmers’ and lenders’ reluctance to enter into fully fledged relation-
ships based on credit.

Figure 2. HARITA
is a holistic
approach to risk
management

“Our season is changing. We don’t know when there will be a bad
year and when there will be a good year. I believe, after taking the
training, this insurance will be helpful during the bad season.
This will pay me.”
— Selas Samson Biru


The HARITA model of managing
climate risk
Since HARITA’s inception in 2008, we have broken important ground in finding ways to integrate
risk transfer with risk reduction, and, gradually, credit. Our approach aims to be flexible enough to
adjust to differing risk conditions at the village-to-village level, while at the same time helping very
poor families overcome cash constraints in purchasing insurance.

The model consists of three main components:

• Risk reduction
• Risk transfer
• Prudent risk-taking
Medhin Reda, a farmer
Working in conjunction with government policies, accessible input and output markets, and agricul-
in Adi Ha, paid for
insurance with labor. tural research geared to benefit smallholders, we believe these three components can help promote
Eva-Lotta Jansson / livelihoods at the household level and greater resiliency to evolving threats, especially climate
Oxfam America change (see Figure 2).


Risk reduction: Minimizing vulnerability
HARITA considers risk reduction the foundation of any holistic risk management approach. Risk
reduction entails actions meant to promote resiliency by minimizing vulnerability to and enhanc-
ing capacities vis-à-vis disaster risks. Farmers in Adi Ha participating in a community-wide
Participatory Capacity and Vulnerability Assessment listed drought as the current, primary threat to
their livelihoods and wellbeing. To limit the adverse impacts of drought and other important haz-
ards, risk reduction in Adi Ha will require sustained use of locally appropriate farm, water, and soil
management techniques, as well as increased social awareness of adaptation for the climatic chal-
lenges ahead.

The risk reduction activities undertaken in the 2009 phase of the pilot in Adi Ha were based on
thorough consultations with the community and newly commissioned research on teff productivity
in Tigray. These activities consisted of:

• Making and using compost—Critical for rebuilding soil nutrients and improving soil
moisture retention.
• Constructing small scale water harvesting and planting nitrogen-fixing trees and grasses--
Promoting soil regeneration, water conservation, and reducing the risk of flooding.
• Cleaning teff seeds—Boosting productivity and controlling weeds.
These risk-reducing interventions are key to reducing exposure to natural hazards, boosting income
over time, and promoting quicker recovery from disaster. While further study is required, we expect
the majority of the benefits of clean seeds, for example, to accrue to women, who are usually sad-
dled with the labor-intensive task of weeding. Seed cleaning requires relatively little time to conduct
and can be completed close to the home while minding children.

Most significantly, HARITA is exploring ways to build its risk reduction approach on Ethiopia’s
Productive Safety Net Program (PSNP), a well-established, government social protection program
serving eight million chronically food-insecure households.3

In 2005, acknowledging that the current food aid system was broken, the Ethiopian Food Security
Office established the PSNP as a system of transferring cash and food to vulnerable households
before they reach a crisis point. Assistance is coordinated through government and financial
channels in exchange for the labor of beneficiaries for building community assets, such as water-
harvesting structures, or reclaiming environmentally degraded areas.

As of 2008, the PSNP had grown into one of the largest social protection programs in Africa. Early
impact studies suggest that the PSNP is superior to traditional, emergency food aid programs in
significantly increasing household welfare. For example:

• In 2006, three out of five beneficiaries avoided having to sell productive assets, such as livestock
and land, to buy food—a common “distress” response—with over 90 percent attributing this di-
rectly to the PSNP (UNDP 2007) (Sharp et al. 2006).
• Nearly 50 percent of program participants claimed they used healthcare facilities more than in the
prior year (UNDP 2007).
• Over a third of beneficiaries enrolled more of their children in school, and nearly 50 percent kept
children in school longer (UNDP 2007).
HARITA applauds the many successes of the PSNP and seeks to build upon them.


Risk transfer: Weather index insurance
HARITA could strengthen the PSNP by addressing the non-chronic needs not covered under the
program. Through HARITA, Adi Ha’s farmers enrolled in the PSNP had the option to work extra
days beyond those required for their normal payments, but instead of earning cash or grain for this
additional labor, they earned an insurance certificate protecting them against deficit rainfall. In other
words, through this insurance-for-work (IFW) arrangement, farmers received “predictable transfers
for unpredictable needs4.”

The IFW model requires an independent source of financing, most likely from large, governmental
and multilateral donors (though at the moment, Oxfam America is playing this role). Once scaled up,
a HARITA-type risk management program could potentially tap funds from the following sources:

• Multilateral donors
• Foreign aid
• Carbon markets
• Emerging sources of climate change adaptation funds at the international level (See Appendix III
for more information)
From the perspective of donors, the HARITA approach multiplies the value of money by two: While
a certain amount of aid could be used for either paying an insurance premium or for hiring labor to
carry out risk reduction measures, with HARITA, the same amount of money simultaneously results
in both insurance and risk reduction.

BOX 1. Weather
Index Insurance Weather index insurance differs from traditional insurance, in which compensation to a policy-
holder is based on the estimated value of what was actually lost. Index insurance can be more
effective than traditional crop insurance because it:

• Limits “moral hazard5”—an index is not influenced by farmers’ behavior.
• Limits “adverse selection6.”
• Can have lower administrative costs—no individual visits are required to assess damages
as in traditional crop insurance. (However start-up costs can be large.)
• Increases affordability—administrative costs are lower.
• Allows for faster payout—farmers gain resources and time to manage shortages in
food production.
Thus weather index insurance could help smallholder farmers by allowing them to stabilize their
incomes and recover more quickly from climate-related shocks.


Fekadu Abreha plows his
field in Adi Ha. Eva-Lotta
Jansson / Oxfam America

Over the course of the project, the allied project partners cooperated on designing an affordable,
drought insurance prototype package for teff. With International Research Institute for Climate and
Society and Swiss Re in the lead at the international level, and Nyala Insurance Company and
Dedebit Credit & Savings Institution (DECSI) at the regional level, the team developed a weather
index insurance product for Adi Ha. Weather index insurance entails risk transfer against events
that cause loss. If a pre-defined weather event occurs during a pre-defined time, such as a short-
age of rain during a crucial period in a crop’s growth, this event triggers predetermined payments to
farmers who buy the policy. “Index” refers to the fact that the insurance is based on a proxy for loss
and an objectively verifiable measure of weather.

Insurance can also allow poor producers to make potentially optimal production decisions, even
in the face of uncertainty, meaning they can afford to plant high-yield seeds purchased on credit
despite the uncertainty of future precipitation levels. Because the insurance contracts are priced
from year to year, the premium charged can also reflect changing risks over time, including not
only climate change trends but also seasonal rainfall predictions (see Osgood et al., 2008). In
this way, the market signals to farmers what production strategies are likely to succeed given the
current conditions.

Finally, insurance serves as a partial guarantee for banks and microfinance institutions that are
reluctant to make substantial unsecured loans for inherently risky agricultural activities. In this way,
formal risk transfer has the potential to reduce the interest rate on lending as well.


Prudent risk-taking: Credit
The final component of the HARITA model involves prudent risk-taking, primarily in the form of
credit for:

• Purposes of livelihood diversification—such as honey production.
• Technology adoption—such as high-yield seed varieties and irrigation.
• Entrance into more value-added economic activities—such as producing high-value horticultural
crops, like spices and vegetables.
As noted earlier, risk aversion can exacerbate farmers’ vulnerability by making them less likely
to make such investments, even when affordable loans are available. Yet, credit for productive
purposes can often lead to a better livelihood and gradual accumulation of wealth. In fact, an inde-
pendent study commissioned by the Association of Ethiopian Microfinance Institutions found that 70
percent of the extremely needy clients of DECSI cited access to its lending programs as the reason
for positive changes in their living conditions (Borchgrevink et al., 2005).

More than ever, insurance-based collateral is crucial, because of the increasing climate risks as-
sociated with agricultural lending and because of the current phase-out of Ethiopia’s farmer loan
guarantee fund, which had made agriculture lending more viable.

Without government backing, most asset-poor farmers will only have access to their neighbors
as collateral. Ethiopian microfinance institutions heavily favor the group guarantee lending model
(GGLM) (Borchgrevink et al., 2005), where borrowers vouch for each other and cover defaults in
the group. The GGLM is widely criticized by poor clients for stimulating conflict among borrowers,
yet lenders will struggle to find an acceptable alternative once the loan guarantee fund is entirely
eliminated. In this way, insurance could have a secondary benefit in providing an alternative to the
GGLM. For all these reasons, credit is an integral piece of our aspirational model for HARITA.


How HARITA complements other risk
management efforts

Macro level
The Ethiopian government is developing a variety of policies to address major regional and
national weather-related risks. In 2006, for example, the government, the World Food Program,
and reinsurer AXA RE developed a macro-level, index insurance policy to help the government deal
with catastrophic drought across the country.

Community level
Communities are adept at managing minor, idiosyncratic shocks among households through infor-
mal community-based arrangements, such as helping each other after the death of a draft animal.
HARITA is positioned to take on community-level mass risks, such as localized droughts that are
The orange orchard not severe enough to trigger outside assistance but that nonetheless overwhelm farmers’ coping
of the local farming
capacity. This layer of risk management was missing during the infamous famine of 1984, during
cooperative in Adi Ha, in the
Tigray region of Ethiopia. which up to a million people perished. New research suggests the tragedy did not grow out of a
Eva-Lotta Jansson / massive drought as previously thought. Rather, a number of scholars argue that the famine was,
Oxfam America in part, the result of many small droughts in prior years that eroded the capacity of communities to


the point that they could no longer cope with the relatively modest drop in rainfall in 1984 (Fraser,
2007). The main implication then is that helping farming villages deal with small shocks along the
way is just as important as helping them deal with catastrophic regional and national emergencies
(which are often a reflection of weaknesses in the mechanisms to deal with minor shocks).

Farmer Medhin Reda, 45,
with her daughter Tekleweini
Girmay, 7, in their corn
field in Adi Ha, in the
Tigray region of Ethiopia. A
participant of the teff crop
microinsurance pilot in her
community, Reda pays for
the premium with her labor.
Eva-Lotta Jansson /
Oxfam America


Innovations: Laying the foundation
for demand-driven index insurance
Because this project breaks ground at a number of levels, we believe HARITA holds important les-
sons for promoting climate resilience in Ethiopia and beyond. Given that development practitioners
have relatively deep experience with risk reduction and credit, HARITA has focused on exploring
the potential and limits of the little understood tool of agricultural microinsurance. Although numer-
ous successful examples of weather index insurance exist in highly developed countries like the
United States and Canada, to date agricultural insurance has enjoyed limited application in develop-
ing countries.

As such, few existing index insurance projects have reached the stage of actual financial transac-
tion, and most are small-scale pilot projects or one-year test-period projects. While these projects
prove index insurance can work at a technical level, it remains to be seen how they can be scaled
up and used effectively as an “industrial strength” tool for development that better serves the needs
of the poor. Uptake of weather insurance in prior pilots has often been disappointing, partly due to
the relative unfamiliarity of insurance concepts in poor communities and partly due to underinvest-
ment in demand-driven (as opposed to supply-driven) products. HARITA is working to develop
educational tools around this new class of financial products and to bring insurance closer to the
core interests of farmers.

For all these reasons, we have prioritized research on index insurance, but only to the degree that
it constitutes the experimental tool in a bigger toolbox. HARITA seeks to tackle four key barriers to
using weather insurance at scale:

• How to integrate insurance with risk reduction
• How to engage farmers meaningfully in insurance design
• How to overcome weather data barriers
• How to increase insurance take-up by farmers

How to integrate insurance with risk reduction
As described above, the HARITA model of risk management integrates insurance with risk reduc-
tion and an optional component in credit as well. Most weather index pilots have bundled insurance
only with credit. HARITA’s model is different in that it thoroughly integrates all three elements, with
risk reduction being the most significant. By allowing very vulnerable farmers to pay their premi-
ums through risk-reducing labor, farmers benefit even when there is no payout—the risk reduction
measures taken in their communities pay dividends, even during the wet years. This insurance-for-
work model allows farmers the option to bundle insurance and credit without being required to do
so. Many farmers have told us that they are eager for more flexibility in managing their relationship
to financial providers; this innovation helps respond to their concern.

How to engage farmers meaningfully in insurance design
Farmers in Adi Ha have been central participants in the design of the weather index insurance pack-
age by contributing ideas, feedback, and advice. HARITA’s emphasis on farmers’ interests differs
from the dominant model of product design, which revolves primarily around the interests of lenders
and insurers. The community helped the project partner organizations identify farmers’ vulner-


abilities to specific hazards and their capacity to adapt through a series of microinsurance demand
assessment surveys, focus groups, and a community-wide Participatory Capacity and Vulnerability
Assessment. Five community members were elected by their peers to join the “Pilot Design Team”
to manage the initiative. A focus group of 21 farmers participated in a number of test workshops on
climate change, financial literacy, and insurance. In addition, Columbia University’s International
Research Institute for Climate and Society (IRI) conducted experimental economic risk simula-
tions and focus group discussions with farmers to understand their preferences for key parts of the
insurance contract, such as coverage levels and frequency of payout. This process of engagement
resulted in a markedly more attractive product and improved the financial service providers’ ability
to educate farmers effectively. In fact, a central innovation of the pilot—to enable the poorest farm-
ers to pay for insurance in forms other than cash—was suggested by the farmers themselves during
a focus group. Without the urging of farmers to make insurance affordable in creative ways, this
innovation would never have been realized.

How to overcome weather data barriers
Designing rainfall index insurance normally requires at least 30 years of reliable, daily precipitation
data. In most developing countries, rain gauges are sparsely distributed and limited in quality and
duration. Not surprisingly, most weather index pilot project locations to date have been pre-selected
for the quality of local rainfall records. These data-supply-driven pilots have demonstrated that
weather insurance products are viable at the pilot level; however, the general lack of weather data
is a serious barrier to extending weather insurance to the vast majority of poor communities, which
are often located very far from existing weather stations with long and reliable records. Adi Ha is no
different and had only seven years of rainfall data (deemed unreliable) at the beginning of the pilot.
For this reason, we worked with IRI to explore new techniques to enhance sparse local datasets
through a combination of satellite imagery, rainfall simulators, and statistical tools that incorporate
information from the closest stations.

IRI carefully studied the time series in Adi Ha and surrounding areas. Based on its experiences in
developing index products in Central America, Ethiopia, Malawi, and elsewhere, IRI developed a
viable index based on satellite data and an open-source methodology for handling data gaps. While
continued refinement will be necessary, IRI’s approach was examined and accepted by the insur-
ance and reinsurance providers, Nyala Insurance Company, and Swiss Re. Also, as a complement
to IRI’s work, a group of 21 farmers in Adi Ha were trained in weather data collection and have been
helping the team better understand the rainfall patterns in the area to better manage basis risk.

How to increase insurance take-up by farmers
While some index insurance pilots have attracted solid demand from farmers, it is unclear why take-
up has not been automatic or stronger given the many theoretical benefits of risk transfer.

Academic research and index insurance pioneers have found that farmers struggle to understand
complex financial products, much less afford them. HARITA took the following steps to overcome
these two barriers:

• Employed culturally appropriate popular education methods developed in conjunction with farmers
(e.g., storytelling and participatory games).
• Offered in-kind premium payments that allow poor clients to ”purchase” much more coverage than
they could afford otherwise.
We are monitoring farmers’ experience with and without the HARITA package to better understand
whether it is contributing to increased resiliency. Answering this question will require multiple sea-
sons of research, but project partners are committed to sustaining our efforts in Ethiopia.


Pilot results

Over the course of two days, May 28-29, 2009, approximately 600 farmers attended project
enrollment activities in Adi Ha, including financial literacy training, drama, music, and dancing,
and enrollment and evaluative surveys. The rollout constituted a major milestone in the life cycle
of the project.

As a result of the late-May outreach, 200 households signed up for the HARITA-affiliated risk
management package offered by Ethiopia’s Nyala Insurance Company (known as the Wahisna
package). Based on uptake rates in prior pilots, we had set our enrollment goal at an ambitious 100
households and were pleased to double that goal. Taking into account the number of households
who purchased insurance versus the number of households who knew about the Wahisna product
and understood it, the take-up rate in the first year of the pilot was 34 percent.

By way of comparison, consider that in a sample of studies asking whether a household has ever
Community meeting before
borrowed from any microcredit provider, the take-up rates of microcredit around the world vary from
enrollment activities
in Adi Ha.
38 percent to 76 percent, with most rates less than 50 percent (Karlan et al. 2010).7 These figures
Michelle Talukdar / measure the percentage of households that have ever borrowed over a period of 3 or more years,
Oxfam America with the highest number (76 percent) covering more than 10 years.


The fact that HARITA’s first-year take-up rate has already reached a level close to the microcredit
take-up rates reported for longer borrowing periods is surprising and encouraging. Microcredit prod-
ucts have been offered much longer and have had more time to evolve to meet households’ needs.

Another exceptional aspect of the take-up rate in the HARITA program is that 65 percent of the
households buying insurance are chronically food insecure, as defined by being participants in the
Productive Safety Net Program (PSNP). Additionally, roughly 38 percent of enrollees were female-
headed households. By definition, these two groups constitute the most vulnerable farmers in Adi
Ha. Overall, 22 percent of all female-headed households purchased the package versus 18 percent
of all male-headed households.

At the outset of the pilot, the received wisdom in the microinsurance industry was that farmers this
poor were uninsurable, but our insurance-for-work model is a direct challenge to conventional
thinking. Under the Wahisna package, very poor farmers can purchase insurance with their labor.
Over time, as livelihoods improve and farmers graduate from the PSNP, they become candidates for
the commercial insurance market where they can choose to pay for insurance in cash. Already, 35
percent of the enrollees (ones who are better off and not members of the PSNP) have paid in cash,
using disposable assets they had built over time. Adjusted for landholding, farmers paid (in cash
or labor) an average of 138 Ethiopian Birr in premiums (roughly US $12.22), approximately 1.8
times the minimum option.

The minimum purchase was 76 Birr (US $6.73), and the maximum was 229 Birr (US
$20.28). Wahisna’s charge was 22 percent of premium, plus a two percent administrative fee. Based
on historical rainfall records, expected payout is just over one in five. To put these numbers into per-
spective, consider that there was no price subsidy, and that in 2008 the International Monetary Fund
estimated Ethiopia’s nominal, annual gross domestic product per capita at US $324.8

In most other index insurance pilots similar to HARITA, households that buy insurance have not
been poor or very poor. We believe HARITA’s demand-driven product development process has
contributed strongly to these exciting results.

Figure 3. Selected enrollment results of the Wahisna package (HARITA policy), May 2009
Source: Columbia University Institute for Social and Economic Research and Policy


Challenges

Inefficient methods for gathering information
As this was our first experience with microinsurance and the development of a holistic approach to
risk management, we recognized early in the pilot that our information-gathering process would be
iterative, fragmented, and sometimes duplicative. While our different methodologies for the pilot
(e.g., risk transfer and risk reduction) have unique strengths, they also overlap in the information
they gather. We are seeking to integrate these methodologies into our monitoring, impact evalua-
tion, and learning process in 2010.

In a similar vein, we worked with a wide range of researchers in 2009 to address specific research
questions; in 2010 we aim to consolidate a smaller group of multidisciplinary researchers who will
share a broader institutional knowledge of the project.

Voluntary donation to farmers for teff yield loss in 2009
HARITA is a program in its experimental stage. In the first cycle the index was not triggered, thus
Nyala Insurance Company was not required to make an insurance payout. However, there was sig-
nificant crop loss, in part due to lack of sufficient rain. Next year, we plan to expand the program to
provide more coverage options and community support. Given the crop loss and that the insurance
product is still under development, Oxfam America decided to make a one-time, voluntary donation
to the farmers who participated in HARITA. (Oxfam America was under no legal obligation to make
the voluntary donation and may decide not to make such donations in the future, even under similar
circumstances.) The donation amount-- 46,000 Birr (approximately US $4,000)--was calculated by
applying a hypothetical model of an index that could have addressed the risk encountered in 2009.9

We anticipate that the planned community saving component of the 2010 package could be utilized
to provide payouts below the level of the deductible and address basis risk (losses not reflected by
rainfall deficit calculations).


Conclusion

In June and August of 2009, two related studies of farmers were conducted in Adi Ha to measure
insurance comprehension and factors affecting uptake. The studies were designed by a researcher
at the Center for Responsible Environmental Decisions at Columbia University, in close collabora-
tion with a field team at the Relief Society of Tigray.

The first study—to develop and test a means for evaluating the impact of the index insurance on
the farmers of Adi Haa—included a randomized survey of 200 farmers in Adi Ha in June 2009, both
buyers and non-buyers of the Wahisna financial package. The second study--to gain qualitative
data about farming issues and coping strategies—included 21 interviews with farmers in Adi Ha,
from August 2 to 6, 2009. A number of key findings emerged from these studies:

• Insurance clients were more likely to be female, younger, and Productive Safety Net
Program participants, compared with non-buyers and the general population. They were also
more likely to have less land and grow less teff. These results demonstrate that the HARITA ap-
.
proach successfully targeted poorer farmers.
Photo:
Eva-Lotta Jansson / • Community trainings on insurance were key to farmers being able to answer questions about
Oxfam America insurance correctly—especially the training conducted through popular theatre.


• Farmers said the most common reason for non-purchase was being unaware of the op-
portunity (41 percent), while 13 percent said they did not understand the product. Just over 30
percent said they had no reason not to buy. These findings suggest areas for improvement in
outreach and education.
• Survey participants were satisfied with the product’s current price (93 percent), period of
coverage (96 percent), crop used (83 percent), satellite data use (90 percent), and complaint
process (92 percent).
• Farmers stated they are more likely to buy insurance if it is connected to loans and im-
proved loan terms. In the pilot’s first year, the insurance product was not tied to a custom loan
package, although this is envisioned in future years. The study revealed that farmers who plan
to take loans next year expect a higher average loan amount than this year (US $122 versus US
$115). Plans for next year also show a greater interest in loans for agricultural inputs (20 per-
cent higher) and investing in other businesses (68 percent higher, albeit from a low initial basis).
(Peterson, 2009).

Selected HARITA Publicity
The New York Times, BBC, Nature, New Scientist, The Guardian, the Boston
Globe, Addis Fortune, Africa-Wide Civil Society Climate Change Initiative for
Policy Dialogues, Newsweek, and Swiss Re Magazine.
For further detail on other HARITA publicity, see Appendix IV.

This research also suggested specific ways to improve monitoring and assessment. Building on the
findings, the HARITA team is now implementing a more robust monitoring and impact evaluation
plan for our expansion phase in 2010 to understand the effectiveness and scalability of our model.

In short, the consensus is that HARITA has identified work areas of great promise. We are plan-
ning another round of innovation in 2010 in our search to develop an integrated set of tools that will
reduce vulnerability to climate-related risk. This toolbox must prove useful and effective in a variety
of regions and over a variety of risks. HARITA’s quest is urgent, and we appreciate the support of
our funders in our search for answers.


Appendix I: Major partners and
institutional roles
From the project’s inception, we have engaged a full range of stakeholders, including farmers, local
partners, local financial service providers, international reinsurance companies, and academics
with expertise in microinsurance, climatology, and participatory development. In May 2008, we
launched a “HARITA Design Team,” consisting of representatives from the community, local stake-
holder organizations, and Oxfam America. To promote a participatory design process, the HARITA
Design Team was charged with designing and implementing the HARITA pilot, with support and
Community members feedback from international technical advisors, such as International Research Institute for Climate
of design team. and Society and Swiss Re. For a detailed discussion of major partners and institutional roles,
Paul Block IRI / Oxfam America see below.


HARITA partners

• The Adi Ha Community. Central participants in the design of the pilot.

Local
• The Adi Ha Farmers Cooperative. Primary organizing body for farmers in the
community.

• Relief Society of Tigray (REST). Local project manager for HARITA, responsible
for operating the Productive Safety Net Program (PSNP) in six districts of Tigray and
overseeing all regional coordination. Established in 1978. Working with Oxfam since
1984 on development issues. Largest nongovernmental organization in Ethiopia (and
one of the largest in Africa).
• Nyala Insurance Company. Private insurer in Ethiopia with a strong track record of
interest in agricultural insurance.
Regional / National

• Dedebit Credit and Savings Institution (DECSI). Second largest microfinance
institution (MFI) in Ethiopia with nearly comprehensive coverage of Tigray. Named by
Forbes magazine as one of the top 50 MFIs in the world.
• Mekelle University. Member of National Agricultural Research System providing
agronomic expertise and research.
• Ethiopian National Meteorological Agency (NMA). Technical support in weather
and climate data analysis.
• Tigray Regional Food Security Coordination Office. Oversight of the PSNP in the
pilot area.
• Tigray Cooperative Promotion Office. Responsible for helping organize farmers at
the village level.
• Institute for Sustainable Development (ISD). Research organization dedicated to
sustainable farming practices.

• Oxfam America. International relief and development organization that creates lasting
solutions to poverty, hunger, and injustice. Lead project manager for HARITA.
• Swiss Re. Global re-insurer and leader on climate change advocacy. Funding and
technical expertise.
• International Research Institute for Climate and Society (IRI). Member of
Columbia University’s Earth Institute. Research and technical expertise in climate data
and weather index design for rural farmers.
Global

• The Rockefeller Foundation. The Rockefeller Foundation supports strategies and
services that help communities cope with the impacts of current and imminent
climate change.
• Index Insurance Innovation Initiative (I4) at University of California, Davis (UC
Davis). Research partnership on index insurance between academia and development
organizations, with UC Davis, the Food & Agriculture Organization, International Labour
Organization, and US Agency for International Development.
• Goulston & Storrs, Weil, Gotshal & Manges, and Simpson & Thacher. Pro bono
legal expertise.


Appendix II: Summary of
pilot activities
The goal of the HARITA pilot was to develop a scalable, rights-based model for empowering com-
munities in Ethiopia to adapt to climate variability and change by piloting an insurance instrument
and integrated risk-reduction measures as part of a holistic approach to risk management.

Stage 1: Exploration & Demand Assessment
(November 2007–January 2008)
Discussion of insurance on Goal: Assess the viability of launching a microinsurance pilot in Adi Ha.
enrollment day in Adi Ha.
Michelle Talukdar / • Commissioned a study of risks, coping mechanisms, opportunities, and demand for
Oxfam America microinsurance among farmers in Adi Ha to assess the viability of launching a pilot.


Stage 2: Pilot Preparation (February 2008–January 2008)
Goal: Assess the viability of pursuing weather insurance for the microinsurance pilot, enable
local stakeholders to participate in further development, and design a prototype contract for
further engagement.

In collaboration with the Micro Insurance Association of the Netherlands, conducted a regional
workshop to orient stakeholders to microinsurance concepts and discuss results from the demand
assessment in Adi Ha so stakeholders can participate in further development of the pilot.

Commissioned International Research Institute for Climate and Society (IRI) to study the weather
data available in Adi Ha and develop a prototype weather insurance contract to assess the
viability of pursuing weather insurance for the microinsurance pilot.

Facilitated a community decision for the HARITA pilot to pursue weather insurance for teff
farmers, informed by inputs from the demand assessment, regional workshop, consultation
with technical advisors, and community focus groups.

Stage 3: Capacity Building for Participatory Design
(July 2008–October 2008)
Goal: Establish a rights-based process for participatory design and orient the HARITA Design Team
and pilot participants to the process and content of the pilot.

• Established a formal “HARITA Design Team” to coordinate the design and implementation of the
HARITA pilot so the community and local stakeholders may be fully engaged in a rights-based
process for participatory design.
• Recruited 21 “Pilot Participants” to engage farmers for feedback and mutual learning.
• Conducted a climate change workshop with the Pilot Participants.
• Installed an automatic weather station in Adi Ha and provided rain gauges for each
Pilot Participant.
• Conducted a financial literacy workshop with the Pilot Participants.
• Conducted a weather insurance orientation with the HARITA Design Team for active
participation in the design and implementation of the pilot.
• Commissioned experimental research on teff production strategies in Adi Ha to explore
opportunities to boost teff productivity and reduce farmers’ dependence on expensive and
sometimes problematic inputs, such as mineral fertilizer.

Stage 4: Financial Package & Risk Reduction Design
(November 2008–March 2009)
Goal: Design the financial package and establish a process for launching the package, and
design risk-reduction measures to complement the weather insurance.

• Conducted a Participatory Capacity and Vulnerability Assessment (PCVA) in Adi Ha to
understand which risk-reduction activities would be most appropriate to integrate with the
weather insurance.


• Commissioned IRI to refine the prototype insurance contract; conduct research on rainfall simu-
lations, remote sensing, and climate trends; and provide technical support to prepare for the
launch of the financial package.
• Commissioned IRI and the University of California, Davis to conduct surveys and experimental
economic risk simulations (game play) in Adi Ha to elicit farmers’ preferences for different
characteristics of drought insurance contracts and examine farmers understanding of drought
insurance.
• Conducted field research on the scalability of HARITA in seven other villages in Tigray.
• Negotiated with the community, partners and advisors to design a distribution model and
develop the financial package.
• Consulted the community, partners, and advisors to understand which risk-reduction strategies
could be tightly integrated and scaled with the weather index insurance.

Stage 5: Financial Package Education (April 2009–May 2009)
Goal: Provide education and outreach necessary to launch the financial package.

• Conducted workshops with local partner staff, the HARITA Design Team, and Pilot Participants
to educate them about the financial package, rehearse for enrollment days, and enable peer-to-
peer outreach.
• Prepared pictorial handouts and posters about weather index insurance, designed with images
appropriate to illiterate farmers.
• Commissioned a financial literacy drama that was performed for farmers on enrollment days--
accompanied by music and dancing--so farmers could make an informed decision about
whether or not to pay for the product.

Stage 6: Financial Package & Risk-Reduction Implementation
(May 2009–October 2009)
Goal: Launch the financial package and risk reduction measures, and understand farmers’
willingness to pay for the product.

• Coordinated with local partners and financial service providers to launch the risk management
package via two enrollment days in the community, May 28-29, 2009.
• Enabled farmers in the PSNP to earn their premiums through a menu of different risk reduction
activities, such as composting, constructing small-scale water-harvesting structures, planting
nitrogen-fixing trees and grasses, and cleaning teff seeds.

Stage 7: Monitoring, Evaluation, & Learning (May 2009–May 2010)
Goal: Evaluate the pilot’s outcomes and potential for scale.

• Collaborated with advisors and local partners to prepare a voluntary donation of 46,000 Birr
(approximately US $4,000) to support farmers who bought the insurance in 2009 and suffered a
substantial yield loss.
• Conducted quantitative surveys and qualitative interviews with farmers in Adi Ha to measure
insurance comprehension and factors affecting uptake. An impact evaluation is currently under
development.
• Sent a writer and photographer to Adi Ha to gain an in-depth qualitative understanding of the
daily life of farmers in Adi Ha and their perceptions of the HARITA risk management package.


Appendix III: Summary of
transacted index

The following technical summary of the index used for the Wahisna
insurance in Adi Ha in 2009 is excerpted from a detailed technical
report by the International Research Institute for Climate and Society
(IRI), “Designing Index-Based Weather Insurance for Farmers in Adi
Selas Samson Biru, 48, in
Ha, Ethiopia,” which can be accessed on the IRI website.10
one of her fields (corn) in Adi Ha,
in the Tigray region of Ethiopia. The index is designed to proxy an early end to the rainfall season, determined by consensus to
She is a farmer and a participant
be the primary risk for teff. If the cumulative rainfall as reported by the National Oceanic and
of the teff crop microinsurance
pilot in her community. Atmospheric Administration (NOAA) ARC satellite rainfall remote sensing product for the months
Eva-Lotta Jansson / of August and September (11 August - 09 October, European calendar, 5 Nahase – 29 Maskaram,
Oxfam America Ethiopian calendar) does not surpass the trigger value of 105 millimeters, the insurance policy will


pay out. The direct source for ARC data is from NOAA11, and IRI has made ARC data and back-
ground information available through the IRI data library.12 Payout is calculated according to the
following formula, decreasing linearly between 105 millimeters to 60 millimeters (no rain):

Payout = (1 – ((Rainfall Sum – Exit) / (Trigger – Exit)))*Max Payout

Payout = (1 – ((Rainfall Sum – 60) / (105- 60)))*1000

This formula is in terms of a unit-less currency, with a maximum liability scaled to 1000 units, so it
can be adjusted for any maximum liability desired.

Historically, in the 14 years of ARC satellite rainfall records we have available for analysis (since this
particular satellite was launched), this index would have produced payouts in 1997, 2000, and 2004
in Adi Ha.

The year 2000 was identified independently by numerous groups of farmers in Adi Ha as the last
major dry cropping season for teff. The contract has been designed for broad agreement between
rainfall simulations, surrounding stations, and other satellite rainfall estimates. Table 1 reports the
payouts, rainfall, and comparison with a model of crop water stress presented as a proxy for
yield losses.

For this contract, the mean payout is approximately eight percent of the maximum liability using the
raw historical rainfall data, and 11 percent when applied to rainfall simulations. Much of the price
of this contract is driven by the observed downward trend in the rainfall data, and the exits of this
contract have been reduced to keep pricing workable when the climate trend is included. The trend
is not represented in the raw data in the table below, although the contract has been modified in
response to the trend.

To make the contract workable given the climate trend, the exit was reduced from 80 millimeters to
60 millimeters. With the original exit, which does not account for the downward trend (80 millime-
ters), the contract has a full payout of approximately one out of 12 years. With the exit reduced in
response to the trend, the contract would be expected to have a full payout of approximately one
out of 27 years.
The mean payout using either detrended historical data or simulated rainfall is approximately
15 percent.13


Table 1. Historical Satellite Losses
Crop Water Payout (% of
burn payouts for estimated (calculated
Stress max liabil-
transacted index Harvest Rainfall (in from Crop
Index– a ity) 105mm
Year mm over Water Index
proxy for trigger and
contract - % of max
losses 60mm exit
window) liability)
1995 0.5691 127.01 4.87 0
1996 0.6071 197.94 0 0
1997 0.5687 85.60 5.35 43.11
1998 0.6626 195.55 0 0
1999 0.6539 177.37 0 0
2000 0.4469 99.17 127.12 12.95
2001 0.5151 125.72 58.91 0
2002 0.5254 113.51 48.59 0
2003 0.6325 188.94 0 0
2004 0.4461 80.92 127.94 53.51
2005 0.6116 118.63 0 0
2006 0.5646 173.71 9.41 0
2007 0.6499 138.88 0 0
2008 0.5789 112.91 0 0
Correlation Correlation
(teff health (losses vs.
vs. rainfall) payouts):
0.7104 0.5388

Table 2. Insurance Approximate Premium Premium in days of
packages offered
Max Payout
(Birr) PSNP Labor
to farmers 1200 288 24
1000 240 20
800 192 16
600 144 12
400 96 8

The climate trend is included in the pricing, leading to a premium with loaning and fees of approxi-
mately 24 percent of maximum liability. It is likely that strategies can attenuate the impacts of this
apparent trend on the pricing.

The contract options for the Adi Ha project were chosen to match likely farmer needs and out-
comes during the season. The minimum contract option that farmers were allowed to purchase
would completely cover their inputs for the teff growing season (400 Birr maximum liability). The
maximum contract option would completely cover the average expected loss for the teff growing
season (1,200 Birr max liability). This was calculated as a difference of the average yield in a “good
season” and the average yield in a “bad season,” per farmer surveys.

Three additional contract options were offered as gradations between these two, as show in Table
2. There were options to purchase the contract using cash as well as days of labor; and in the case
of a payout; payments could potentially be in grain or cash.


Appendix IV: HARITA publications,
coverage, and media

HARITA reports available for public use (approved)

Short-length reports (fewer than 2 pages)

“HARITA Executive Summary 2010,” February 2010 (3 pages)

Medium-length Reports (fewer than 10 pages)

“HARITA Progress Report, January 2010 to June 2010,” June 2010 (final approval pending)

Long-length reports (10 or more pages)
• “Estimating the Demand for Micro-Insurance in Ethiopia,” February 2009
• “Micro-Insurance Demand Study--Summary,” March 2010 (final approval pending)

Photo: Eva-Lotta Jansson /
• “Micro-Insurance Demand Assessment in Adi Ha,” February 2008
Oxfam America • “Index Insurance Games in Adi Ha, Tigray, Ethiopia,” July 2009


• “Livelihoods, Coping, and Micro-Insurance in Adi Ha, Tigray, Ethiopia,” August 2009
• “Designing Index-Based Weather Insurance for Farmers in Adi Ha, Ethiopia,” July 2009
• “HARITA Scale-Up Plans 2010 and Beyond,” March 2010 (final approval pending)
• “HARITA Project Report, November 2007 to December 2009,” June 2010
• “Pro-Poor Insurance: Principles and Paths Ahead,” June 2010 (final approval pending)

HARITA information on Oxfam America website
Stories about the microinsurance pilot are posted on the Oxfam America website:

“Weather Insurance Offers Ethiopian Farmers Hope — Despite Drought”

oxfamamerica.org/articles/weather-insurance-offers-ethiopian-farmers-hope-despite-drought

oxfamamerica.org/multimedia/slideshows/a-tiny-seed-and-a-big-idea

“Medhin Reda’s Best Asset Is Her Own Hard Work”

oxfamamerica.org/articles/medhin-reda-looks-to-weather-insurance-to-solve-problems

“Gebru Kahsay Relies on Rain But Has the Security of Insurance”

oxfamamerica.org/articles/gebru-kahsay-relies-on-rain-but-has-the-security-of-insurance

“Selas Samson Biru Faces Uncertainty With the Seasons”

oxfamamerica.org/articles/with-insurance-selas-samson-biru-finds-help-in-the-bad-season

HARITA reports available for stakeholders (not general public)

Short-length reports (fewer than 2 pages)

• “HARITA Monthly Report Narrative Summary,” May 2010
• “HARITA Lessons Learned” brief developed with Swiss Re, February 2010

Medium-length reports (fewer than 10 pages)
• Presentation on HARITA from I4 Conference, Rome, January 2010
• Presentation on HARITA for Swiss Re, March 2010
• “2010 Clinton Global Initiative (CGI) Commitment Progress Report,” March 2010

Long-length reports (10 or more pages)
• “HARITA Swiss Re Report,” January 2010
• “HARITA Rockefeller Foundation Report,” February 2010
• “Economic Innovation & Incentives Fund Report,” March 2010


HARITA in the news

Media

• Anne Chetaille and Damien Lagrandré, “L’assurance indicielle, une réponse face aux risques
climatiques?” Inter-réseaux Developpement Rural (Mar. 31, 2010).
• Pablo Suarez and Joanne Linnerooth-Bayer, “Micro-Insurance for Local Adaptation,” Wiley
Interdisciplinary Reviews: Climate Change (Mar. 12, 2010).
• “Microinsurance to Mitigate Climate Change Impact,” Lloyd’s of London News Centre
(June 4, 2010).
• “Oxfam Provides Farm Insurance in Africa,” New England Cable News, (Nov. 6, 2009).
• James F Smith, “World’s Poorest Farmers Now Offered Insurance,” The Boston Globe
.
(Oct. 13, 2009).
• Evan Lehmann, “Africa Experiments With Climate Insurance--for $5 a Year,” New York Times
(Sep. 30, 2009).
• “Swiss Re, Oxfam America, Rockefeller Foundation, and Columbia’s IRI Expand Joint Risk
Initiative in Tigray, Ethiopia,” Swiss Re press release (Sep. 25, 2009).
• “Climate Insurance: What Kind of Deal Can Be Made in Copenhagen?” The Guardian
(July 24, 2009).
• Jeff Tollefson, “Insuring Against Climate,” Nature (July 22, 2009).
• Catherine Brahic, “An Insurance Plan for Climate Change Victims,” New Scientist (July 1, 2009).
• Omer Redi, “Insurance Firm Sows Seeds,” Addis Fortune (June 14, 2009).
• “Coping With Climate,” Newsweek (Dec. 30, 2008).

Citations

• “The Potential for Scale and Sustainability in Weather Index Insurance,” International Fund for
Agricultural Development and World Food Programme (Mar. 2010).
• “Index Insurance and Climate Risk: Prospects for Development and Disaster Management,”
International Research Institute for Climate and Society (IRI), Columbia University.
• “Index Insurance for Development and Disaster Management,” IRI, Columbia University.
• Joanne Linnerooth-Bayer, et al., “Drought Insurance for Subsistence Farmers in Malawi,” Natural
Hazards Observer, Vol. XXXIII, No. 5, Natural Hazards Center, University of Colorado (Boulder
Colorado: May 2009).
• United Nations Framework Convention on Climate Change Nairobi Workshop, where HARITA was
introduced to country delegates.
• Global Risk Forum Davos and International Development Research Centre, Microfinance and
Disaster and Risk Reduction (forthcoming).


Endnotes
1 http://portal.iri.columbia.edu/portal/server.pt/gateway/PTARGS_0_4972_6332_0_0_18/rpt09-04%202009_
EthiopiaInsuranceReporttoOxfam.pdf
2 According to the International Monetary Fund, “Poverty Reduction Strategy Papers (PRSPs) are prepared by member coun-
tries through a participatory process involving domestic stakeholders as well as external development partners, including the
World Bank and International Monetary Fund. Updated every three years with annual progress reports, PRSPs describe the
country’s macroeconomic, structural, and social policies and programs over a three year or longer horizon to promote broad-
based growth and reduce poverty, as well as associated external financing needs and major sources of financing.”
3 Program costs are approximately US $500 million annually. The PSNP is supported by a wide range of donors, including the
World Bank, the World Food Program, the UK Department for International Development, and the US Agency for International
Development..
4 Note that richer farmers who did not participate in the PSNP were able to purchase insurance with their own cash. As such,
they constitute a potentially important subset of clients for the Ethiopian insurance industry.
5 Moral hazard is when an individual enters an agreement by providing misleading information about assets, liability, or credit
capacity to earn a profit. For example, with traditional crop insurance a farmer would allow crop failure (e.g., by not working
toward adequate crop production). Therefore, the farmer still benefits from an insurance payout even though the crop failure
was intentional.
6 Adverse selection is when an individual’s demand for insurance increases as the level of risk-taking increases, and the insurer
is unable to account for this characteristic in the price of the insurance.
7 These are percentages of households who have ever borrowed versus of households that are eligible for the program (not all
households in the area served).
8 It is important to mention that while the product did not feature a price subsidy, it did require a source of financing to allow
farmers to monetize their labor. In year one, Oxfam America provided these funds to the PSNP and, in this sense, the
,
insurance-for-work model is non-commercial.
9 For the avoidance of doubt, we used the hypothetical model solely for the purpose of determining the amount of the voluntary
donation. The hypothetical model was not a part of the insurance farmers purchased last spring and may not be a part of
any insurance product that farmers are offered in the future.
10 http://portal.iri.columbia.edu/portal/server.pt/gateway/PTARGS_0_4972_6332_0_0_18/rpt09-04%202009_
EthiopiaInsuranceReporttoOxfam.pdf
11 ftp://ftp.cpc.ncep.noaa.gov/fews/AFR_CLIM/DATA
12 The ARC data is also directly available through the data library at http://iridl.ldeo.columbia.edu/SOURCES/.NOAA/.NCEP/.
CPC/.FEWS/.Africa/.DAILY/.ARC/.daily/X/39.089/VALUE/Y/13.736/VALUE/.est_prcp/T/(1%20Jan%202009)(30%20Oct%20
2009)RANGEEDGES/T+exch+table-+text+text+skipanyNaN+-table+.html. By changing the latitude and longitude in the URL
directly you can access the ARC for other sites. This link is set up for Adi Ha.
13 It is likely that the difference between simulated and historical rainfall is less for the detrended data because the detrending
process changed many non-payout years to payouts. This is often the primary driver for differences between rainfall simula-
tions and historical burn analysis. Fairly quantifying the potential for near payouts in historical data is one of the primary
reasons that rainfall simulators are used.


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Forty percent of the people on our planet—more than 2.5 billion—now live in poverty,
struggling to survive on less than $2 a day. Oxfam America is an international relief
and development organization working to change that. Together with individuals and
local groups in more than 90 countries, Oxfam America saves lives, helps people
overcome poverty, and fights for social justice. To join our efforts or learn more, go to
oxfamamerica.org.

For more information about the Rural Resilience Series, please contact
Oxfam America Senior Global Micro-Insurance Officer David Satterthwaite
at (617) 728-2590 or dsatterthwaite@oxfamamerica.org.

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