An insight on farmers’ willingness to pay for insurance premium in South India: hindrances and challenges

Kakumanu Krishna Reddy, Kuppannan Palanisami, Kotapati Gurava Reddy, Babar Ashok, Udaya Sekhar Nagothu, Stefanos Xenarios, Kota Tirupataiah. (3/5/2012). An insight on farmers’ willingness to pay for insurance premium in South India: hindrances and challenges. Rome, Italy: European Commission.

Abstract

Farmers are vulnerable to substantial weather risks in many parts of the country. In recent years, weather-based crop insurance has been promoted in India for rain-fed crops to provide insurance against risks and losses in crop yields resulting from adverse weather. Farmers, in general, are not aware of the details of weather-based crop insurance policies and the premium calculations. This study focuses on farmers’ preferences towards the weather insurance of paddy crop, one of the major irrigated crops in India and highly vulnerable to extreme weather. We analyse the mean willingness to pay for weather-based crop insurance using the double bounded dichotomous model of contingent valuation method. Farmers’ willingness to pay was about 2.5 % of gross income with the condition of timely payout for crop losses, creating awareness of the compensation packages and simple documentation. The insurance premium can also be referred to as a risk-adjusted management input in agricultural production.