| Sumario: | • Climate change has led to increased production risks especially for smallholder farmers who often tend to be more vulnerable
• Sub-Saharan Africa (SSA) has several climate change hotspots and is more vulnerable to weather shocks compared to other regions.
• >363 million people affected by drought between 1980-2014 causing > US$31 billion in losses – with 19 billion in East Africa (FAO, 2015)
• Agricultural insurance is a risk management tool for extreme weather events; however, its coverage remains lowest in SSA (Hess and Hazell, 2016).
• Ex post – insurance payouts help coping with losses
• Ex ante – risk reduction can increase investments in agriculture
• However, traditional indemnity-based insurance is characterized by high transaction costs and information asymmetry problems
• Index-based insurance to address these challenges is plagued by high basis risk
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