Area yield indexes offer an alternative to overcome some of these issues. Area yield indexes use average yields in a given area as the index that determines payments to the farmer. The index provides a better reflection of farmers’ actual experience, as it accounts for the entire impact of weather on yields (not just related to rainfall) and non‐ weather risks, such as crop disease. This form of insurance has been adopted extensively in many states of India, receiving much support from the public sector, which provides subsidies on the premiums. Adopting an effective index‐based insurance scheme requires a degree of sophistication on part of the insurer to operate at a large scale and diversify its risk exposure. It also needs accurate historical data on rainfall patters and yields to price the service appropriately and determine payouts. In addition, it is important to note that these instruments do not eliminate basis risk. For these reasons, weather insurance – while promising – should be complemented with additional strategies. Other financial services, such as microcredit and savings, are viable alternatives: they have been used to great effect in Bangladesh to protect households against weather shocks. Social assistance programs can also address agricultural risk. An example is Kenya’s Hunger Safety Net, which offers cash transfers to vulnerable households and scales up in event of a drought.

**Global insurance.** Some shocks transcend national borders and threaten populations from several countries at once. The severity of the recent Ebola crisis, which extended across Guinea, Liberia, and Sierra Leone and caused economic losses of $2.8 billion, is a reminder that pandemics pose a serious threat to the prosperity of developing countries, especially to the poorest. Large‐scale natural disasters that afflict more than one country are another form of a global shock.  The Indian Ocean Tsunami of 2004 affected 14 countries with close proximity to the Indian Ocean, causing major loss of life—close to 230,000 deaths—and substantial economic damages amounting to $10 billion. The magnitude and frequency of extreme weather is likely to be exacerbated by climate change. A common feature of global shocks is the substantial strain that these events place on a country’s capacity to respond. The burden of a global shock extends beyond the ability of a single country to cope. As a result, national and international action is required to adopt prevention mechanisms and ensure a timely response to the shock.

_Pandemics_ , such as the Ebola crisis, wreak substantial social and economic havoc in all affected countries. A combination of weak public health systems, which fail to detect an emerging threat, and greater integration among countries through mobility and trade, sets the stage for the fast spread of disease. The poorest countries and communities are at highest risk from pandemics. Poor countries not only exhibit the greatest deficiencies in public health systems, but are also predominantly rural and reliant on agriculture. As most pathogens that can lead to a pandemic are animal‐borne, this means that the poor are in a particularly vulnerable position. The economic toll on a country that experiences a pandemic is staggering: by some estimates, a severe flu outbreak could cost $3 trillion, representing a contraction of 4.8 percent in global GDP. Ending extreme poverty will require vulnerable countries—together with the support of the international community—to adopt protective measures against these serious threats.

Protecting a vulnerable country against pandemics requires a focus on both prevention and preparedness. This means undertaking greater investments to strengthen public health systems, as well as veterinary systems. It is estimated that an annual investment of $3.4 billion is required to raise the quality of developing countries’ health systems up to a minimum standard. The economic return to these investments, however, is significant and ranges from 50 to 123 percent. In addition, the strengthening of early warning systems is critical to detect a disease on time. Public health authorities as well as providers of crucial services, such as electricity and transport, must develop 43