Dynamics of Demand for Rainfall Index Insurance: Evidence from a Commercial Product in India

23 Pages Posted: 20 Apr 2016  

Daniel K. Stein

World Bank

Date Written: September 1, 2014

Abstract

This paper analyzes the dynamic nature of rainfall insurance purchasing decisions, specifically looking at whether and why receiving an insurance payout induces a greater chance of purchasing insurance again the next year. This analysis uses customer data from the Indian micro-finance institution BASIX, and finds that receiving an insurance payout is associated with a 9 to 22 percentage points increased probability of purchasing insurance the following year. This affect appears to be driven by behavioral effects of receiving a payout, and cannot be explained by trust, learning, or direct effects of weather. Overall, low repurchasing rates even after payouts suggest that current rainfall index insurance products are likely to continue struggling to achieve significant sales at market prices.

Keywords: Hazard Risk Management, Social Risk Management, Disaster Management

Suggested Citation

Stein, Daniel K., Dynamics of Demand for Rainfall Index Insurance: Evidence from a Commercial Product in India (September 1, 2014). World Bank Policy Research Working Paper No. 7035. Available at SSRN: https://ssrn.com/abstract=2497235

Daniel K. Stein (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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