Factors affecting farmers’ willingness to purchase weather index insurance in the Hainan Province of China

Abstract

Purpose -The purpose of this paper is to explain the factors affecting farmers' willingness to purchase weather index insurance for crops in China, in the Province of Hainan, and to also provide additional background information on weather index insurance. Design/methodology/approach -A survey of 134 farmers was undertaken in Hainan, China, regarding their willingness to purchase weather index insurance. A probit regression model was used, and a number of variables were included to explain willingness of farmers to purchase weather index insurance. Findings -In total, 11 of 15 variables in the model are found to be statistically significant in explaining farmers' willingness to purchase weather index insurance. Research limitations/implications -First, farmers' interest in weather index insurance may be limited due to basis risk. Second, some farmers may not sufficiently understand weather index insurance and so may not purchase it, and a considerable portion of farmers may also require a subsidy if they are to purchase weather insurance. Practical implications -Weather index insurance may provide a lower cost alternative than traditional crop insurance, however, basis risk remains a main challenge. Originality/value -This is the first study to quantitatively study the factors affecting the willingness of farmers to purchase weather index insurance for agriculture in the province of Hainan, China.

Improving agricultural microinsurance by applying universal kriging and generalised additive models for interpolation of mean daily temperature

“…This can include the situation in which a farmer experiences a loss but does not receive a payment, or alternatively where a farmer does not experience an actual loss but still receives a payment. Therefore, reducing basis risk is likely to be necessary in order to successfully implement index-based weather insurance (Carter et al 2014;Clarke 2011;Elabed et al 2013;Jensen et al 2018;Lin et al 2015;Skees 2008).…”

The Impact of Spatial Interpolation Techniques on Spatial Basis Risk for Weather Insurance: An Application to Forage Crops

“…However, spatial basis risk may be reduced by using spatial interpolation techniques to create better estimates of weather conditions in the farmer's fields. Basis risk continues to be an important and challenging area of research, often limited by the amount of reliable data that is available (AAFC, 2012a;Lin et al, 2015). Major (1999) was one of the first academic papers to propose a method for analyzing basis risk as it applies to catastrophe derivative contracts.…”

“…Weather index insurance has become a popular subject in agricultural risk management with many papers devoted to its discussion (Heimfarth and Musshoff, 2011;Lin et al, 2015;Okhrin et al, 2013). Under these policies farmers receive payments if they experience adverse weather for their crops during the growing season.…”

“…These policies offer many benefits, such as reduced administrative costs and decreased adverse selection and moral hazard. However, this type of insurance is particularly susceptible to the problem of spatial basis risk (Lin et al, 2015). Spatial basis risk occurs when the weather observed at weather stations does not match the weather experienced by the farmer's crops, causing improper indemnities to be paid to the farmer (Dick and Stoppa, 2011).…”

Weather indexes, index insurance and weather index futures

“…Zhu (2011) studied the achievements and challenges of China's weather index insurance programs and found that farmers had weak demand for such insurance. Lin et al (2015) found some factors affecting farmers' willingness to purchase weather index insurance in China and concluded that besides the recognition of risk itself, factors such as their type of agricultural products and farmers' trust to the insurer affect the farmers' willingness.…”