Rethinking Premium Subsidies for Agricultural Insurance. Quantitative evidence from 146 index insurance schemes worldwide

Abstract

While subsidization of index insurance is a common measure to promote financial risk management in agriculture, this form of policy support is highly controversial. Critics fear, among others, potential market distortions and heavy strains on public budgets, and point out alternatives like product bundling. Providing the first quantitative, cross-country evidence, this study analyzes the role of subsidization, loan bundling, and non-loan bundling for the survival of 146 index insurance programs. Using a genetic matching approach and survival analysis, we find that non-loan bundling is statistically significantly associated with higher likeliness of project survival. For premium subsidization and loan bundling no robust relationship with project survival could be found. Combined with qualitative evidence from our database, these findings help to formulate a number of policy suggestions towards improving sustainable agricultural insurance markets.