Research On Factors Influencing Farmers’ Participation Inagricultural Insurance

As a risk management tool, crop insurance could effectively mitigate risk and share loss to stabilize farmers’ income, which is threatened by natural risk and market risk. China’s agricultural insurance subsidy programme, promoting the rapid development of agricultural insurance, was officially launched in 2007. By 2013, agricultural insurance, however, just covered 42% of plant area. This means that participation rate remains low even with heavy subsidies from government. Meanwhile, the development of new agricultural insurance and innovation of weather, price index insurance and micro-debt insurance should be encouraged and promoted, said a report from China Insurance Regulatory Commission(CIRC). But before the promotion of new agricultural insurance, it is important to explain why the participation rate still remains low with the government’s subsidies and identify the factors influencing farmers’ purchase decisions.Therefore, to further widen coverage of agricultural and provide information for the development and promotion of new agricultural insurance, the general goals of this paper are to make it clear why the participation rate stays low and provide relevant policy suggestions based on the analysis on the factors that influence farmers’ participation decision. To achieve the goals above, based on the previous studies, this paper, taking the maize-planting farmers as example and combining the information of natural land conditions and risk preference, analyzes farmers’ participation behavior with micro data, collected from the tracking survey on farmers. Firstly, farmers’ decision processes and factors, considered when they purchase insurance, are simulated, and the theoretical frame, used for research, is constructed on the basis of literature summarize and theory review. Secondly, the econometric analysis with IV method, for household and plot level, is used to analyze main factors influencing farmers’ participation in agricultural insurance. Finally, the conclusions are achieved on the basis of empirical analysis.Results are listed as follows. First, premium is no longer the restriction of participation in insurance with the heavy subsidies from government, and farmers show higher demand, which is not met by existing insurance products, for risk dispersion and security. Second, input cost, scale operation and diversification are important factors influencing participation behaviors. For production behaviors of larger scale and higher input, demand for insurance would increase to avoid risk, and as informal risk management tool, diversification can significantly reduce the demand for agricultural insurance; In addition, there are adverse selections in farmers’ purchase decisions. Adverse selection, bringing loss to agricultural insurance companies, is not beneficial to sustainable development of agricultural insurance.To further widen China’s coverage of agricultural insurance, according to the results above, policy suggestions are provided as follows: first, the agricultural insurance should be widen to meet multiple demands, and development and pilot of new agricultural insurance should be positively explored. And the adjustment in subsidy policy stimulates agricultural insurance to develop commercial agricultural insurance and improve risk security. Second, the more attentions should be paid to large scale and specialized farmers. Moreover, the index insurance, which can effectively avoid adverse selection and moral hazard facing agricultural insurance companies, should be developed, and the new products, such as price insurance and profit insurance, should also be developed to meet farmers’ higher demand.