4.4 Article

Demand for Crop Insurance in Developing Countries: New Evidence from India

Journal

JOURNAL OF AGRICULTURAL ECONOMICS
Volume 72, Issue 1, Pages 293-320

Publisher

WILEY
DOI: 10.1111/1477-9552.12403

Keywords

Agricultural risk management; crop insurance; developing countries; discrete choice experiments; India; willingness-to-pay

Funding

  1. Government of India's Department of Agriculture, Cooperation and Farmers Welfare (DACFW)
  2. Bill and Melinda Gates Foundation (Cereal Systems Initiative for South Asia, CSISA)
  3. CGIAR Research Programme on Policies, Institutions, and Markets (PIM)

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Farmers value crop insurance under certain conditions and are willing to pay premiums higher than government-subsidised rates. They prioritize timely payouts and may not have a strong preference for the method of loss assessment. Farmers are sensitive to coverage periods.
Determining farmers' real demand for crop insurance is difficult, especially in developing countries, where there is a lack of formal financial sector integration and a high reliance on informal risk mitigation options. We provide some new estimates of farmers' willingness-to-pay for insurance in the context of a large-scale subsidised programme in India. We conducted a discrete choice experiment with agricultural households across four states in India, enabling us to estimate preferences for specific insurance policy attributes such as coverage period, method of loss assessment, timing of indemnity payments and the cost of insurance. Our results suggest that farmers do value crop insurance under certain conditions and some are willing to pay a premium for such coverage in excess of the subsidised rates they are currently required to pay under this programme. In particular, farmers value the assurances that they will receive timely payouts when they incur losses, and may not have a strong preference for the method with which losses are assessed. On the other hand, farmers are quite sensitive to coverage periods. Our baseline assessment shows that when optimised to farmer requirements, there can be a sizeable demand for crop insurance by developing country farmers.

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