Updated Aug 24, 2020

Dual Strike point Area Yield Index Insurance

https://basis.ucdavis.edu/news/index-insurance-has-big-returns-small-scale-cotton-farmers-and-local-economies-west-africa

Tara Chiu

This dual strikepoint innovation in index insurance design offers high value to farmers while assuring insurers that the contract will not be at risk of collusion within the village.

A dual strikepoint, or "dual trigger" contract design is used with an area yield-based index insurance product. Researchers developed this method to minimize moral hazard for insurers and provide better contract quality to farmers. The duel-trigger is a mechanism by which farmers qualify for a payment when a smaller geographic area has average yields that fall below a critical level, as well ...
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A dual strikepoint, or "dual trigger" contract design is used with an area yield-based index insurance product. Researchers developed this method to minimize moral hazard for insurers and provide better contract quality to farmers. The duel-trigger is a mechanism by which farmers qualify for a payment when a smaller geographic area has average yields that fall below a critical level, as well as a larger geographic area set at a higher trigger level. This dual trigger offers high value to farmers while assuring insurers that the contract will not be at risk of collusion within the village.
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Stage 5: Scaling

Focus Areas:

Agriculture

AgricultureSEE LESS

Implemented In:

Tanzania, Mali, Mozambique and 2 MoreSEE ALL

Tanzania, Mali, Mozambique, Bangladesh and Burkina FasoSEE LESS

5
Countries Implemented In
Verified Funding
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Problem

With agricultural insurance, farmers will receive payouts if the average yields in their area fall below a critical level. But questions remain about how best to design the contract to reflect the realities on the ground. For example, at what geographic scale should the insurance be defined? Too large an area will not accurately reflect the experience of individual farmers. Too small an area and farmers can cooperate to manipulate outcomes.

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Solution

To mediate these opposing risks, researchers proposed a dual-trigger contract design in which farmers qualify for a payment when a smaller geographic area has average yields that fall below a critical level, as well as a larger geographic area set at a higher trigger level. This dual trigger offers high value to farmers while assuring insurers that the contract will not be at risk of collusion within the village.

Target Beneficiaries

Farmers struggling with drought risk

Competitive Advantage

This index insurance innovation of a duel-trigger helps to maximize its potential to enhance resilience among small-scale agriculturalists. The typical challenges of basis risk and low uptake have plagued index insurance products for years, but this is one solution that will improve the structure of the insurance contracts to improve development impacts.

Milestone

Date Unknown
Date Unknown
New Country Implemented In
Burkina Faso
Date Unknown
New Country Implemented In
Bangladesh
Date Unknown
New Country Implemented In
Mozambique
Date Unknown
New Country Implemented In
Mali
Date Unknown
New Country Implemented In
Tanzania
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