- Actuarial values, observed payouts and pricing. â For four policies in Table 1 of the main text, we calculate a simple measure of expected payouts, using historical rainfall data. Historical daily rainfall data is available from 1970-2006 for the Andhra Pradesh contracts, and from 196528 As a point of reference, the average daily wage for agricultural laborers in our survey areas at the time of the study is around Rs. 50, although the incomes of landed farmers and more skilled workers are significantly higher.
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- Contract design. â Table 1 of the main text presents contract details for the 2006 insurance policies in Andhra Pradesh and the 2007 policies in Gujarat. Policies are underwritten by ICICI Lombard in Andhra Pradesh and by IFFCO-Tokio in Gujarat, though a Swiss reinsurance company provides re-insurance for ICICI Lombard. Payoffs are calculated based on measured rainfall at a nearby weather station maintained by the Indian Meteorological Department (IMD) or at an automated rain gauge operated by a private third-party vendor such as NCMSL. ICICI Lombard policies divide the monsoon season, known as the âKharifâ, into three contiguous phases of 35-45 days, corresponding to sowing, flowering, and harvest.26,27 Separate Since monsoon onset varies across years, the start of the first phase is defined as the day in June when accumulated rainfall since June 1 exceeds 50mm. If <50mm of rain falls in June, the first phase begins automatically on July 1.
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- Each insurance contract specifies a threshold amount of rainfall, designed to approximate the minimum required for successful crop growth. As an example, the Phase I ICICI Lombard policy in Mahbubnagar pays zero when cumulative rainfall during the 35-day coverage phase exceeds the strike of 70mm. Payouts are then linear in the rainfall deficit relative to this threshold, jumping to Rs. 1000 when cumulative rainfall is below the exit of 10mm, meant to correspond approximately to a point of crop failure. Thus an Anantapur Phase I policy would pay Rs. 30 for a realized rainfall of 27 mm. IFFCO-Tokio policies have a similar structure, paying out whenever rainfall during the entire monsoon season is at least 40 percent below a specified average level for that district (normal rain).
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- Frequency of insurance payouts in the village (2004 and 2005) AP Equal to 1 if there were insurance payouts in the village in both 2004 and 2005. Equal to 0.5 if there was a payout in either 2004 or 2005, but not both. Equals 0 if no payouts in either year.
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Fuster, Andreas and Paul S. Willen. 2010. âInsuring Consumption using Income-linked Assets.â Review of Finance, forthcoming.
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GinÃ, Xavier, Lev Menand, Robert Townsend and James Vickery. 2012. âMicroinsurance: A Case Study of the Indian Rainfall Index Insurance Marketâ in Ghate, Chetan (ed.), Handbook of the Indian Economy, Oxford University Press.
GinÃ, Xavier, Robert Townsend and James Vickery. 2008. âPatterns of Rainfall Insurance Participation in Rural India.â World Bank Economic Review, 22(3): 539-66.
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- Index insurance markets are expanding in many emerging market economies (World Bank, 2005; Skees, 2008). The first Indian rainfall insurance policies were developed by ICICI Lombard, a large general insurer, with technical support from the World Bank (Hess, 2003; Bryla and Syroka, 2007). There are many technical requirements and practical challenges in the design and implementation of a weather index insurance pilot. These are covered in detail in World Bank (2011). The ICICI Lombard product was piloted in 2003 in a semi-arid district of Andhra Pradesh. Over time, rainfall insurance has become more available across many parts of India, and policies are also now underwritten by competing firms, including the government company Agricultural Insurance Company of India (AIC).
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- Thanks to the 2005 Insurance Regulatory and Development Authority (IRDA) regulations, non-governmental organizations, microfinance institution and self-help groups are legally recognized as micro-insurance agents, thus increasing the potential for coverage (IRDA, 2005). 2003 for the Gujarat contracts. These data are not available for three Andhra Pradesh stations, where payouts are based on automated rain gauges, or for Anand in Gujarat.
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- The three phase ICICI Lombard contract was designed in 2004 in an attempt to simplify the initial 2003 contract.
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- Zwane, Alix Peterson, Jonathan Zinman, Eric Van Dusene, William Pariente, Clair Nul, Edward Miguel, Michael Kremer, Dean S. Karlan, Richard Hornbeck, Xavier GinÃ, Esther Duflo, Florencia Devoto, Bruno Crepon, and Abhijit Banerjee. 2010. âBeing Surveyed Can Change Later Behavior and Related Parameter Estimates.â Proceedings of the National Academy of Sciences, 108(5): 1821-1826. VIII. APPENDIX Variable name Study Area Definition of variable Household Size Both Number of individuals (of any age) in the household. Scheduled Caste / Scheduled Tribe Both Dummy variable equal to 1 if household belongs to a scheduled caste or tribe. Muslim Both Dummy variable equal to 1 if household's religion is Muslim. Household head is male Both Dummy variable equal to 1 if the household head is male. Household head 's age Both Age of household head in years.
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