An Analysis Of The Current Status Of Crop Insurance And Farmer’s Preferences Towards Crop Insurance In Pakistan

Pakistan is an agriculture country, characterized by arid to semi-arid climatic regions and high population growth rate, facing risk of food security and low agriculture production. Economy and the livelihoods of people largely depend upon agriculture production and farm income, for their growth and sustainability. In few past years, natural disasters related to climate change have become more frequent and severe. The increasing frequency and severity of droughts, hails, variations in rainfall, storms and other extreme weather events associated with climate change have reduced the livelihood options for millions of small-scale farmers in low-income countries. Agriculture sector especially crops are more likely to be affected due to extreme climatic events including floods, drought, rise in temperature or cyclone. Similarly poor farmers, who totally depend upon agriculture income, are affected most due to loss of their agriculture yield and income.Crop insurance is one of the techniques that are being used widely in the world as a risk management tool. But unfortunately it is not seem to be acceptable by majority of farmers due to different economic and social reasons. Therefore the objective of this research study was to study the factors and issues that restrict the penetration of crop insurance market in Pakistan and to suggest a realistic framework, a one which can work successfully in the existing scenario of Pakistan. For the study, the primary data was collected from three districts of Punjab, namely Rajanpur, Bahawalpur and Dera Ghazi Khan. Most of the data were collected through surveyed questionnaires, group discussions. Secondary data were collected to by secondary means including periodicals, books, magazines, research papers and websites of government of Pakistan. Multiple sampling was used to fulfill the requirement of our objectives and different data analysis tools including Probit Model, American Customer Satisfaction Index(ACSI), Descriptive statistics, Contingent Valuation Method(CVM) and Heckman Selection Model were used to analyze the primary data.The results of the study revealed that most of the farmers in Pakistan were risk taker and they were willing to invest for new technology and improved farming techniques. Floods, droughts and rainfall variation were the main natural sources of agriculture risk, while savings, credit loan and income diversification were the more frequently used risk mitigation techniques in Pakistan. Results also reveal low awareness level among farmers about crop insurance; most of the farmers know very little about conditions and benefits of crop insurance program, they believe that crop insurance is a kind of tax which is designed only for rich farmers so it only facilitates rich farmers. Financial banks and e-media were found to be major sources of their awareness; and education and credit avail were found to be the most important factors that have a positive significant impact on awareness level of farmers. The study also analyses the satisfaction of farmers with existing crop loan insurance program, the result of the analysis show low level of satisfaction among farmers in Pakistan with crop loan insurance program, the results show that perceived quality and perceived value were the factors which have the positive and significant effect on customer satisfaction while customer expectations were found to be negatively associated with customer satisfaction. And customer satisfaction were found to be positively related to customer loyalty and negatively related to customer complaints. The negative relationship between customer expectation and perceived quality shows that the higher the farmers’ expectations, the more likely it would be different from actual delivered quality, thus lower the perceived quality. So the insurance providers should bridge the gap between the expectations of the farmers’ and their practical experience by addressing the real cost and benefits of their services to farmers and also by delivering them what they were promised. Fulfillment of customer expectations regarding quality attitude, ability and knowledge of insurance providers, reliability and transparency of insurance procedures and in time loss payment(compensation) can raise/enhance the satisfaction level among the farmers. In order to find out the scope of crop insurance program in Pakistan, farmers were asked to show their willingness to pay and willingness to join for new(weather and index base) crop insurance programs, majority of farmers show their willingness to participate for crop insurance scheme but at minimum premium cost. Landholding and farm income were found to be the two important factors that positively and significantly influence willingness to pay. Similarly farm income, land holding and loss experience were found to have a positive significant impact on farmer’s willingness to participate while Credit availed, expected yield, land tenure system were found to have a negative significant impact on farmer’s willingness to participate for crop insurance. Similarly the study also evaluated those factors which hinder the farmer’s willingness to participate for crop insurance program. Insurance against Islamic rules, dissatisfaction with crop loan insurance scheme, lack of knowledge about crop insurance scheme, premium cost and time taking process were the factors that have positive and significant impact on the farmer’s decision of not to participate in crop insurance scheme, while Limited Decision and coverage to limited perils were found to be insignificantly related with willingness of farmers.Hence, the study show that there is a positive future scope for crop insurance sector in Pakistan, Government and insurance providers must realize the importance of crop insurance for our agriculture sector and poor farmers and they must design more crop insurance programs which meet the needs of poor farmers, so that a successful crop insurance market could be launch in Pakistan, which is a demand of climate change scenario in Pakistan.