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Weather insurance that works for African farmers

In Uganda, SEI is helping to develop a kind of insurance for smallholders that can shield them from climate shocks.

Photo: SEI.

Date published
15 April 2019
A story from
Mbale district, Uganda

This impact story is from our 2018 annual report.

Climate change is altering weather patterns and disrupting agricultural cycles, resulting in higher variability in crop yields and food prices, with knock-on effects for poverty and food security, especially in low-income countries.

Smallholder farmers are particularly vulnerable to climate shocks and are usually ill-equipped to cope with the associated risks. What’s more, uncertain weather patterns often cause them to avoid risk, for example by choosing not to invest in technologies or services that could boost their productivity and incomes. In this way climate impacts can both cause and perpetuate poverty for smallholders.

Weather index insurance

Insurance can help to shield smallholders against climate shocks, allowing them to buy food when their own crops fail and giving them the confidence to invest.

An innovative solution, “weather index insurance”, has been put forward as a way to provide this cover while avoiding the need to verify claims, which can be highly costly for insurers relative to the low value of the crops insured. Instead of being based on claimed losses, weather index insurance payouts are made at predetermined rates after the occurrence of objectively verifiable weather events, such as extended periods of low rainfall.

However, while offering weather index insurance to low-income smallholders makes sense in principle, it has had disappointing results in practice. In particular, the products on offer have been found to undermine traditional community relations and have tended to attract only wealthier farmers.

An innovative solution

Using a toolkit developed by the SEI Initiative on Behaviour and Choice, SEI worked alongside partners from the University of East Anglia (UEA) and Lab-in-the-Field (a non-profit research institution in eastern Uganda) to see how weather index insurance could be rolled out more successfully in Uganda.

In a case study in Mbale district, Uganda, a combination of service design methods with discrete choice experiments was used to gain insights about the local smallholders. The project team investigated the needs and preferences of the local farmers, including what drives their behaviour in relation to crop cycles, investments and agricultural financing. The team also investigated the severity and frequency of existing risks, and how farmers cope with them.

Based on the findings the researchers identified three main farmer “archetypes” that insurance companies can use to design a portfolio of insurance products tailored to the needs of smallholders like those in Mbale.

A development economist at UEA, Professor Arjan Verschoor, said: “One-size-fits-all development solutions often fail in practice because they wrongly assume the beneficiaries are a homogeneous group. The combination of methods revealed rich detail about this group of smallholders and what solutions might best meet their varied needs.”

“The combination of methods revealed rich detail about this group of smallholders and what solutions might best meet their varied needs.”
—Arjan Verschoor, Development Economist, UEA

Future applications

Study results were presented at Uganda’s National Forum of Agriculture and Food Security and broadcast on national television. The Economic Policy Research Center (EPRC), a Ugandan think tank that advises government ministries, including the Ministry for Agriculture, has requested that the team apply its methods in designing and implementing future agricultural programmes aimed at improving the livelihoods of smallholders.


No poverty

We work to understand the confluence of factors – the social, environmental, political and economic circumstances – that keep people in poverty.

SDG1 research connections. SDG1 is connected to SDGs 2, 10 and 13.

Connecting to the SDGs

Many of the technical solutions put forward to reduce rural poverty (SDG 1: No poverty) around the world look good on paper but fail to attract the intended users. This study used innovative methods to help insurers design viable products that meet users’ needs and at the same time serve as effective climate adaptation (SDG 13: Climate action). Weather index insurance can also help to ensure smallholders can purchase food when their own crops fail (SDG 2: Zero hunger). Insurance packages targeted at poorer farmers can also help to reduce inequalities in climate adaptation (SDG 10: Reduce inequalities).