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Does Index Insurance Help Households Recover from Disaster? Evidence from IBLI Mongolia

Author

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  • Veronika Bertram-Huemmer
  • Kati Kraehnert
Abstract
This paper investigates the impact of indemnity payments from index insurance on the asset recovery of households after a catastrophic weather disaster occurs. Our focus is on the Index-Based Livestock Insurance (IBLI) in Mongolia. We analyze the effect of IBLI indemnity payments after a once-in-50-year winter disaster struck Mongolia over 2009/10. The database for our analysis is three waves of a household panel survey implemented in western Mongolia. We employ the bias-corrected matching estimator to account for selection into purchasing IBLI. Results indicate that pastoralist households purchasing IBLI before the shock recover faster from shock-induced asset losses than comparable non-insured households. We find a significant, positive and economically large effect of IBLI indemnity payments on herd size one and two years after the shock. In the medium term - three and four years after the shock - the effect slowly vanishes. Results are robust to defining post-shock livestock recovery in different ways, varying the number of matches per observation, the choice of covariates, and the use of alternative propensity score estimators. An analysis of shock coping strategies as well as complementary qualitative interviews conducted in the field suggest that indemnity payments help herders to avoid selling and slaughtering animals and smooth their productive asset base. Also, IBLI appears to have relieved households from credit constraints. Our study is among the first to provide evidence on the beneficial effects of index insurance after a weather shock in a developing economy.

Suggested Citation

  • Veronika Bertram-Huemmer & Kati Kraehnert, 2015. "Does Index Insurance Help Households Recover from Disaster? Evidence from IBLI Mongolia," Discussion Papers of DIW Berlin 1515, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1515
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    References listed on IDEAS

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    Cited by:

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    2. Takahashi, Kazushi & Noritomo, Yuma & Ikegami, Munenobu & Jensen, Nathaniel D., 2020. "Understanding pastoralists’ dynamic insurance uptake decisions: Evidence from four-year panel data in Ethiopia," Food Policy, Elsevier, vol. 95(C).
    3. Crook, David R. & Robinson, Brian E. & Li, Ping, 2020. "The Impact of Snowstorms, Droughts and Locust Outbreaks on Livestock Production in Inner Mongolia: Anticipation and Adaptation to Environmental Shocks," Ecological Economics, Elsevier, vol. 177(C).
    4. Julian Roeckert & Kati Kraehnert, 2022. "Extreme Weather Events and Internal Migration: Evidence from Mongolia," Economics of Disasters and Climate Change, Springer, vol. 6(1), pages 95-128, March.
    5. Aditya Kusuma & Bethanna Jackson & Ilan Noy, 2018. "A viable and cost-effective weather index insurance for rice in Indonesia," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 43(2), pages 186-218, September.
    6. Mogge, Lukas, 2023. "A District-Level Analysis of the Effect of Risk Exposure on the Demand for Index Insurance in Mongolia," Ruhr Economic Papers 1018, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    7. Ricome, Aymeric & Affholder, François & Gérard, Françoise & Muller, Bertrand & Poeydebat, Charlotte & Quirion, Philippe & Sall, Moussa, 2017. "Are subsidies to weather-index insurance the best use of public funds? A bio-economic farm model applied to the Senegalese groundnut basin," Agricultural Systems, Elsevier, vol. 156(C), pages 149-176.
    8. Li, Hongping & Zha, Yong & Bi, Gongbing, 2023. "Agricultural insurance and power structure in a capital-constrained supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 171(C).
    9. Christophe Béné, 2020. "Resilience of local food systems and links to food security – A review of some important concepts in the context of COVID-19 and other shocks," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 12(4), pages 805-822, August.
    10. Dongli Wu & Shan He & Lingui Qin & Jingyue Feng & Yu Gao, 2024. "Role of Policy-Supported Hog Insurance in Promoting Green Total Factor Productivity: The Case of China during 2005–2021," Agriculture, MDPI, vol. 14(7), pages 1-24, June.
    11. Ella Kirchner & Oliver Musshoff, 2024. "Digital opportunities for the distribution of index‐based microinsurance: Evidence from a discrete choice experiment in Mali," Journal of Agricultural Economics, Wiley Blackwell, vol. 75(2), pages 794-815, June.
    12. Vroege, Willemijn & Dalhaus, Tobias & Finger, Robert, 2019. "Index insurances for grasslands – A review for Europe and North-America," Agricultural Systems, Elsevier, vol. 168(C), pages 101-111.
    13. Hansen, James & Hellin, Jon & Rosenstock, Todd & Fisher, Eleanor & Cairns, Jill & Stirling, Clare & Lamanna, Christine & van Etten, Jacob & Rose, Alison & Campbell, Bruce, 2019. "Climate risk management and rural poverty reduction," Agricultural Systems, Elsevier, vol. 172(C), pages 28-46.
    14. Möllmann, Johannes & Buchholz, Matthias & Kölle, Wienand & Musshoff, Oliver, 2020. "Do remotely-sensed vegetation health indices explain credit risk in agricultural microfinance?," World Development, Elsevier, vol. 127(C).
    15. Ayako Matsuda & Kazushi Takahashi & Munenobu Ikegami, 2019. "Direct and indirect impact of index-based livestock insurance in Southern Ethiopia," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 44(3), pages 481-502, July.
    16. Yu, Lu & Aleksandrova, Mariya, 2021. "Weather index insurance: Promises and challenges of promoting social and ecological resilience to climate change," Briefing Papers 14/2021, German Institute of Development and Sustainability (IDOS).
    17. repec:ags:aaea22:335636 is not listed on IDEAS
    18. Lee Cronk & Athena Aktipis, 2021. "Design principles for risk-pooling systems," Nature Human Behaviour, Nature, vol. 5(7), pages 825-833, July.
    19. Moritz, Laura & Kuhn, Lena & Bobojonov, Ihtiyor, 2022. "Crop index insurance for more welfare and climate resilience? An experimental approach," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322096, Agricultural and Applied Economics Association.

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    More about this item

    Keywords

    Index insurance; livestock; weather shocks; Mongolia;
    All these keywords.

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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