Index-based Risk Insurance: “Take-up” Determinants Among Smallholder Households in Southern Ethiopia

Start date: 26 April, 2013 End date: 26 May, 2013 Project type: Master's Thesis (prior to 2018) Project code: A22405 Countries: Ethiopia Institutions: University of Copenhagen (UCPH), Denmark Grant recipient: Solomon Tilahun Mollawork Total grant: 10,000 DKK


In recent decades, the increases in risks related to climate change are widely acknowledged. In Ethiopia, changes have manifested in increased frequency and severity of drought and floods. In contrast, the traditional informal and formal ex post risk management practices have become insufficient and ineffective. Consequently, the government and its development and humanitarian partners introduced index based micro-insurance as one of the priority risk management tools.

However, index based insurance as a risk management tool for smallholders needs to be supported by verifiable demand. The contexts in which it is offered are crucial for take-up or lack thereof. Therefore, this study analysed the context of Wolayita maize and root crops livelihood zone to understand the determinants of its take-up among smallholder households.

The qualitative study combined literature review and field based primary data collection. In order to get first-hand information on smallholder’s livelihood resources, practices, and perceptions; the primary data collection was based on “Grounded theory study”. Focus Group Discussions (FGDs) and in-depth interviews were done with purposively selected households and key informants. Data analysis followed a “systematic content” where data from FGDs and in-depth interviews was reviewed for patterns, consistency and interrelatedness and categorised into themes.

The study found both positive and negative determinants of insurance take-up among smallholder households. The positive determinants included household’s recognition of risk, ineffective coping/self-protection, lack or underdeveloped social protection, and low “basis risk”. On the other hand, the negative determinants related to limitations of the insurers to understand the basic livelihood systems. In addition, financial and seasonal liquidity constraints, unfamiliarity with insurance and high premium prices were negative determinants for the households.

Therefore, the positive determinants are opportunities and negative ones hindrances to deliver index based insurance for the most vulnerable households.