Farmers' interest and willingness-to-pay for index-based crop insurance in the lowlands of Nepal

Farmers in Nepal face many risks from extreme weather events which detrimentally impact their crop production. To support farmers in risk management, prevent financial losses, and facilitate farmer participation in insurance schemes, the Nepalese government subsidises crop insurance by paying 75% of the premiums. However, the uptake of insurance schemes has been poor. This study aimed to find out why by surveying 350 farmers, and identifying factors that influenced farmers' general interest in, and willingness-to-pay for, crop insurance. Approximately 84% of farmers' were interested in purchasing area-based crop yield insurance and were, on average, willing to pay a premium of USD 42.42/ha/cropping season for paddy rice, and USD 29.52/ha/season for wheat. This amounted to more than three times the price of paddy rice premiums (USD 9.96/ha/season), and nearly three times that of wheat premiums (USD 8.59/ha/season) under the current subsidised scheme. This implies that the cause of low uptake is unlikely to be related to the price of premiums. The results further suggest that in order to increase farmers' uptake of crop insurance, the information of the threats of climate variability to future crop failures should be better communicated; and that the current subsidised insurance scheme should be revised.