Another very good piece of development micreconomics journalism from Jina Moore, this one on livestock insurance in rural Kenya. For many poor people in developing countries, the potential benefits of insurance against the risks they face are enormous. As the recent book Portfolios of the Poor illustrates, people with very low incomes also tend to have very uncertain incomes as well- think of casual laborers who cannot rely on steady work, small-scale farmers who are vulnerable to uncertain weather conditions, or informal business owners who have good days and bad days. As a result, one of the biggest concerns these people have is managing their irregular cash flows, so that when things are going badly they can still afford to survive. In fact, it turns out that even very poor people are often willing to pay substantially for mechanisms that help them do this.
And not only is not having to worry about starving its own reward, but being insured can also help people get out of poverty by enabling them to take risks. A person who is insured can plant a crop that has a higher yield but fails once in a while, whereas a person who is not insured might be stuck planting a lower-yielding but more reliable crop (this has been observed in the tradeoff between planting millet and sorghum in West Africa, for instance). If you can cope with the ups and downs, you can own your own rickshaw and keep the profits, if not you might be better off working for a lower wage for someone who owns a rickshaw company. And so on.
Despite the huge potential, insurance projects has a bad rep among people who do development work- they're perceived as not working very well. This is primarily because, as Jina points out, in order to have insurance against losses someone needs to be there to verify the loss:
"For the cattle, camel, and goat herders in Marsabit, a dry part of Kenya that shares a border with Ethiopia, animals are assets. Their sale can bring the income a family needs to survive, and a big herd, like a big house, is a store of wealth that can be useful collateral for credit, which analysts often say is key to pulling people out of poverty. At minimum, losing a cow is a devastating financial blow.
That's the kind of risk that insurance can defray, but insurance agents aren't going to travel to Marsabit to verify cattle deaths."
Jina reports on clever approach to getting around this problem by offering people insurance indexed to rainfall rather than insurance against actual cattle deaths or crop failures:
"Enter weather-indexed insurance, which changes the way the damage is verified for everything from cattle to crops.
"The idea with an index is, instead of providing a payout based on crop loss, you provide a payout based on something you can measure independently," says Dan Osgood, associate research scientist at the International Research Institute for Climate and Society at Columbia University."
A key to these kinds of things from a project design point of view is that what might make sense in theory doesn't necessarily make sense to a livestock owner in rural Kenya- I looked at one case in another context where a logically designed insurance product failed because the farmers didn't understand what they were being offered. This involves not only education and outreach, but flexbility to design the products that make sense to the people who are getting them, rather than just making actuarial sense on paper.