Can premium subsidies for agricultural insurance promote risk protection on natural disasters? Evidence from China

Abstract

Many countries have implemented premium subsidies for agricultural insurance to prevent the spread of natural disaster risks. However, whether such subsidies on agricultural insurance promoted the risk protection level remains unclear. In this study, we assessed the impact of premium subsidies on the risk protection level of agricultural insurance in China by combining the input-output (IO) model with the difference-in-difference (DID) model, using provincial panel data of China from 2003 to 2016. The IO model was employed to calculate direct and indirect economic losses from natural disasters. A risk protection level index was constructed by evaluating the loss compensation ability of agricultural insurance. The time-varying DID model was applied along with robustness tests to identify the effects of subsidies on the risk protection level. Heterogeneity analysis was conducted according to different levels of natural disaster losses. The results revealed that, on average, indirect losses accounted for 38% of annual total economic losses at a national scale. With the implementation of premium subsidies, the risk protection level significantly increased. Heterogeneity analysis indicated that the positive effect of subsidies was more evident in areas with higher economic losses as well as higher incidence of disasters. By evaluating the risk protection level of agricultural insurance and the effects of subsidies, this study aims to provide insights for subsidy design to mitigate economic losses from natural disasters and promote agricultural resilience.