Index-Based Microinsurance for Paddy Sector in Sri Lanka: An Evaluation of Demand Behavior
This study examines the demand and applicability of an index-based microinsurance scheme (IBMS) for paddy crop, cultivated by small scale farmers in Sri Lanka. It aims to support the making of a more efficient and realistic pricing policy for IBMS. The study examines farmers willingness to join (WTJ) and their willingness to pay (WTP) for the hypothetical index-based crop insurance scheme.
Small scale farmers acceptance of evidence supporting the IBMS and potential demand for insurance in the survey area was very high. Results indicate that:
- Age, expenditure and awareness affect WTJ;
- These variables are highly location specific for WTP;
- Farmers in irrigated areas were more in favor of risk aversion behavior and preferred low damage and high coverage contracts;
- Social capital was a high influence on a farmers preference;
- High level of social organization and widespread MFI and banking networks will help deliver microinsurance in Sri Lanka.
The study suggests a participatory approach to insurance design that involves farmers. It recommends that the insurance product should be designed and implemented with the synergies of different approaches. It also advocates linking farmer organizations to the insurance supply chain.
