Smallholder access to weather securities in India: demand and impact on production decisions

Weather index insurance (WII) has had low demand and uptake among farmers despite a recent surge in interest among private companies and policymakers. WII insures crops against production risks on the basis of a weather index (for example, rainfall). One of the reasons for the low demand is the complexity of insurance schemes.

This study by Francisco Ceballos, Isaac Manuel R, Miguel Robles and Andre Butler evaluated the impact of a simple, transparent and flexible WII product among smallholder farmers cultivating rain-fed soybean crop in the state of Madhya Pradesh in India.

The study findings show that the overall demand for the simplified weather index insurance products was low. In fact, there was a fall in demand as price and distance to the weather station increased. Interestingly, intensive insurance literacy training sessions conducted in the first year seemed to have no significant impact on the understanding or demand during the second year. While purchasing insurance did not have a substantial impact, receiving a payout had a positive impact on the decision to purchase insurance in the subsequent season. However, there was no impact on demand of observing other households in the village receiving payouts. This could also be explained by low levels of trust in the product or the insurance company.