Weather index insurance and climate change: Opportunities and challenges in lower income countries

Benjamin Collier, Jerry Skees, Barry Barnett

Research output: Contribution to journalArticlepeer-review

102 Scopus citations


Weather index insurance underwrites a weather risk, typically highly correlated with agricultural production losses, as a proxy for economic loss and is gaining popularity in lower income countries. This instrument, although subject to basis risk and high start-up costs, should reduce costs over traditional agricultural insurance. Multilateral institutions have suggested that weather index insurance could enhance the ability of stakeholders in lower income countries to adapt to climate change. While weather index insurance could have several benefits in this context (e.g. providing a safety net to vulnerable households and price signals regarding the weather risk), climate change impacts increase the price of insurance due to increasing weather risk. Uncertainty about the extent of regional impacts compounds pricing difficulties. Policy recommendations for insurance market development include funding risk assessments, start-up costs and the extreme layer of risk. General premium subsidies are cautioned against as they may actually slow household adaptation.

Original languageEnglish
Pages (from-to)401-424
Number of pages24
JournalGeneva Papers on Risk and Insurance: Issues and Practice
Issue number3
StatePublished - Jul 2009


  • Agricultural insurance
  • Climate change adaptation
  • Financial services development
  • Lower income countries
  • Weather index insurance

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting (all)
  • Finance
  • Economics and Econometrics


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