By simply moving the payment date to harvest time, the pick-up rate for the insurance could be increased.
Photo: istock.com/ranplett

14.12.2018

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Farmers in developing countries often rely heavily on their yearly harvest to feed their families. Despite the significant advantages crop insurances would offer in alleviating the risk of a crop failure, only a small percentage of farmers insure their crops. A simple but effective solution tested by researchers from the University of Zurich has increased insurance adoption to over 70 per cent.

For decades, companies, aid organisations and governments in developing countries have tried to increase the numbers of farmers who insure their crops. However, farmers’ adoption remains stubbornly low. Lorenzo Casaburi from the Department of Economics at the University of Zurich (UZH), Switzerland, and his co-author Jack Willis identified a simple solution to increase the take-up rates of these insurances.

They found that, when it comes to crop insurance, timings and what economists call time preferences are crucial.

In standard insurance products, premiums are paid at a time when farmers are cash- strapped. In addition, as the potential benefit from the insurance, i.e. the payout in case of a bad harvest, lies in the future, its value is mentally discounted. This potential money in the future seems worth less than the price it would cost today. The farmer decides that it is therefore not worth the investment.

Timing of payment of insurance premiums is key

Usually, crop insurances have to be paid at the beginning of the season, just as the farmers need money for inputs, seeds, machinery and to feed their family until harvest, when they can sell their produce.

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