Weather extremes are frequently detrimental for household well-being, in particular in developing countries with populations that depend on agriculture. A novel way to prepare for weather disasters are index-based insurance schemes that pool the risk among a large group of households and distribute payouts depending on the regional occurrence of extreme weather . As one case in point demonstrated, herding households in Mongolia had the opportunity to insure their livestock through Index-Based Livestock Insurance (IBLI) against the risk of very harsh winters, so-called dzud disasters. When a dzud happens, households receive insurance payouts depending on the regional livestock losses . The 2009-2010 dzud led to the death of a quarter of Mongolia's livestock and was the first weather disaster to trigger insurance payouts . This study identifies the key factors underlying insurance uptake to identify whether index-based insurance payouts helped herding households recover from disaster losses.
The study on index-insurance uptake and post-disaster effects exploits a socioeconomic household survey by the German Institute for Economic Research (DIW) that is designed to analyze the impacts of the 2009-2010 dzud. Based on theoretical considerations, the driving factors behind the index-insurance purchase decision are analyzed within a multivariate estimation framework. The determinants of index-insurance uptake are crucial inputs for identifying the effects of insurance payouts on the herders’ asset recovery using quasi-experimental methods.
The study elaborates the determinants of the decision to purchase index insurance. Most importantly, herd size as a comprehensive measure of the household’s wealth and liquidity is identified as a key factor for insurance uptake. Other relevant determinants include the risk preference and financial literacy of the household head as well as community-level circumstances that reflect the covariate risk faced by the household. Based on the identified factors underlying index-insurance purchases, the study investigates the impacts of index-insurance payouts on post-disaster recovery in Mongolia and provides first empirical evidence on the micro-level impacts of an index-based insurance product.
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 Mahul, O & Skees, J (2007) Managing agricultural risk at the country level: The case of index-based livestock insurance in Mongolia. World Bank Policy Res. Work. Pap.
 Fernández-Giménez, M. E., Batkhishig, B. & Batbuyan, B. (2012) Cross-boundary and cross-level dynamics increase vulnerability to severe winter disasters (dzud) in Mongolia. Glob. Environ. Change
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Last edited: 19 August 2015
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