Research Paper #31 The Impact of Microinsurance on Asset Accumulation and Human Capital Investments: Evidence from a Drought in Kenya

Can insurance transfer risk in a way that reduces the need for households to rely on costly coping strategies that undermine their future productivity? That's the central question this paper aims to answer based on evidence from an index-based drought insurance product available to pastoralists in northern Kenya. Results show that insured households are on average 22-36 percentage points less likely to anticipate drawing down assets and 27-36 percentage points less likely to anticipate reducing meals than their uninsured counterpart. Insurance not only smooths consumption but also improves the ability to recovering after a drought.