Prospects for scaling up the contribution of index insurance to smallholder adaptation to climate risk

This CCAFS Info Note presents prospects for scaling up the contribution of index insurance to smallholder adaptation to climate risk.

Climate change is expected to increase the risk from extreme climate events, such as drought, flooding and heat waves, in much of the developing world (IPCC 2012, 2014). Extreme events erode farmers’ livelihoods through loss of productive assets, while the uncertainty associated with climate variability is a disincentive to investing in agricultural innovation. The impacts of climate-related risk contribute to poverty traps that lock many farmers in climate-vulnerable livelihoods, impeding the kinds of transformation that smallholder agriculture needs in order to adapt to climate change. Index-based agricultural insurance is gaining increasing attention as a promising tool for adapting smallholder agriculture to climate risk. Although the promise is backed up by evidence in several contexts, several key challenges must be addressed to realize its potential at scale. New innovations and partnerships have great potential to overcome these challenges and elevate the role of index insurance in smallholder adaptation to a new level.