Agricultural Risk Management through Index-Based Microinsurance: Exploring the Feasibility of Demand Perspective

Abstract

The main objective of this study is to explore, from a demand perspective, the feasibility of an index-based microinsurance scheme (IBMS) for paddy crop cultivated by small-scale (peasant) farmers in Sri Lanka to protect them against the production loss caused by natural disasters. The contingent valuation method (CV) has been used to elicit the insurance demands (i.e. willingness to pay) for the hypothetical IBMS. The results show that the interest in joining IBMS is 88% (SD=2.4%) overall and the strongest influence factors on farmers‟ willingness to join are age, total household expenditure and, awareness of crop insurance. However, willingness to pay determinant varies significantly on spatial and insurance contracts, indicating a potential for a discriminating and flexible policy in the insurance scheme. This means that insurance policies concerning crop insurance product should be designed and implemented with synergies of different approaches in microinsurance, rather than as a uniform structure.