Remote sensing data for managing climate risks: Index-based insurance and growth related applications for smallhold-farmers in Ethiopia

• We propose a blueprint how to use remote sensing data for index-based insurance products.
• Approach combines growth objectives as well as risk hedging needs of farmers simultaneously.
• Supply and demand side considerations taken explicitly into account.

The aim of most index-based insurance programs is to act as a social security mechanism and to provide defense against social and financial exclusion for people whose existing coping strategies are failing. For such schemes, insurance payouts do not depend on the individual losses but on an index which serves as a proxy for the losses. As proposed in this paper, also remote sensing data can be used for index-based insurance which gives additional advantages in comparison to traditional on-ground based indexed instruments. Furthermore, distinguishing between a promotion as well as protection level within such schemes is beneficial from a supply as well as demand side perspective and we suggest an approach how both can be simultaneously introduced within a remote sensing index based insurance framework. The applicability and usefulness of the approach is tested for smallhold farmers in North Shewa, Ethiopia. It is found that the use of remote sensing data is indeed a possible alternative to traditional weather based micro-insurance schemes which offers new ways to tackle current problems of such schemes from a supply side as well as demand side perspective.