Weather Index Insurance Can Help Households Recover from Extreme Weather Events

Abstract

Weather index insurance is considered a promising international climate policy instrument that can help households adapt better to climate change. This is especially true in developing countries where households often suffer severely from the consequences of extreme weather events. This report is one of the first to evaluate the impact of a globally recognized index insurance, Mongolia’s Index-Based Livestock Insurance (IBLI). The empirical study is based on econometric methods and uses data from a survey of almost 1,800 households. It shows that index insurance has a clear positive effect on households: in the first three years after an extremely cold and snowy winter, insured Mongolian households are significantly better off than uninsured households in terms of their livestock, which is the key indicator of income and wealth in this context. Two years after the disaster, their herds were almost a third larger than those of uninsured households. In many places, index insurance could be a suitable measure to prevent poverty after extreme weather events.