Adoption of crop insurance and impact: Insights from India

Abstract

Agriculture is inherently a risky enterprise because of its dependence on rainfall. To mitigate risks, farmers diversify crops and enterprises, maintain stabilization account or resort to the sale of assets. Crop insurance is a complementary institutional mechanism that aids farmers to cope with risks better. Considering the importance of crop insurance in risk mitigation, this paper using data from a large-scale farmers' survey we identify the factors that influence farmers' decision to buy crop insurance and subsequently assess its impact on farm income, production expenses and productive investments in agriculture. Farmers' adoption of crop insurance is low-4.80% kharif season and 3.17% in the rabi season mainly on account of lack of awareness about insurance products. Nevertheless, the probability of adoption of insurance is higher for those who experience higher crop loss and have some formal training in agriculture. The subsidy on premium also positively influences crop insurance uptake decisions. On the other hand, the factors like the lower social status, tenant farming and exposure to deficit-rainfall in the previous year are negatively associated with the decision to insure. The results on the impact of insurance are not conclusive to prove that insured farmer subsumes higher risks compared to the uninsured.

Exploring farmers’ willingness to pay for crop insurance products: A case of weather-based crop insurance in Punjab, India

“…(Skees 1993). Traditionally, insurance coverage is lower in drought-prone areas (Aditya et al 2018); disaster payments may be crowding out potential crop insurance. Improved varieties of wheat-like HD 2967, HD 3086, and WH 1105-are resistant to yellow rust, the major disease of wheat, and farmers who grow these varieties perceive the risk of crop loss to be low, and they are less willing to pay for crop insurance than others; investment in risk mitigation strategies may be crowding out the willingness to pay for crop insurance.…”

“…In the absence of insurance, farmers may not take loans because they fear losing their collateral; therefore, insurance raises credit demand (Carter et al 2007). Crop insurance is often regarded as a first step in developing a sound rural development finance institution, but adoption worldwide has been sporadic--cash-constrained farmers find the premium rates too high, awareness is low, and the insurance market is beset with imperfections (O'Donoghue et al 2009;Santeramo et al 2016;Aditya et al 2018). Farmers find fair actuarial premiums costly, and most governments, particularly in low-and middle-income countries (Babcock 2015), subsidize insurance premiums heavily to ensure that more farmers buy insurance; subsidies also improve risk-sharing and, in turn, the efficiency of insurance programmes in the long run (Swain 2014).…”

Coping with risk and climate change in farming: exploring an Index-based crop Insurance in Burundi

“…Next, smallholders who stated that their knowledge in both land and crop management had improved due to the VSLAs' trainings (organised during the PIP approach implementation) were more likely to adopt crop insurance. These results are similar with those from India where the probability of crop insurance adoption was found higher for farmers with some formal trainings in agriculture (Aditya et al, 2018). Trainings are considered as a crucial motivator in helping smallholders to improve their knowledge in terms of risk management including the use of crop insurance.…”

Development of a Scale to Measure the Attitude of Farmers towards Crop Insurance Scheme

“…Agricultural insurance is considered as an important mechanism to effectively address the risk to output and income resulting from various natural and manmade events [6]. Agricultural Insurance is a means of protecting the agriculturist against financial losses due to uncertainties [7], that may arise agricultural losses arising from named or all unforeseen perils beyond their control.…”