Adoption and preferences for coffee drought index-based insurance in Uganda

Abstract

Micro-insurance can be an effective approach to smoothening income in adverse times and potentially a way to contribute to the financial inclusion of vulnerable populations. As such, adopting a climate insurance coverage aims to adapt in reducing the vulnerability associated with anticipated negative impacts of climate change. Moreover, giving smallholders access to micro-insurance enables them to invest in improved agricultural inputs to enhance farm production and ultimately household income (Karlan et al., 2014; Marr et al., 2016). Key to success with this is to streamline claim handling and marketing efforts in order to minimise transaction costs (i.e. delivering a solution to a low-cost and at a large-scale). Emerging index-based insurance across Africa has proven to enable efficient claim handling. However, direct sales to individual smallholders remains a challenging task without an easily scalable solution (Carter et al., 2014). Adoption studies in the field of crop (index-based) insurance often focus on one-off field experiments ignoring often the insurance delivery channel (see for example a systematic review by Marr et al., 2016). Yet those insurance programmes that are currently running are frequently marketed via aggregators. To reach the necessary scale it is essential to cooperate with aggregators in the agricultural value chain that have an extensive outreach and shared interests. Such organisations include the financial service industry (e.g. insurers, brokers, banks and micro-finance institutions), input providers (e.g. seeds and fertilisers), traders, the processing industry, and farmer-based organisations. The current research seeks to find the determinants of adoption of a stand-alone coffee index-based insurance product in Uganda marketed by a farmer cooperative, and to elicit preferences for improving the index-based design and delivery model. Uganda is proving a particularly interesting context in which to develop the agricultural insurance market since recently public policy has begun supporting crop insurance by providing a premium subsidy (Van Asseldonk et al., 2019). Moreover, droughts are the main cause of crop failure in rain-fed production in Uganda and climate change is exacerbating the impact of drought events (Platform for Agricultural Risk Management, 2015). The findings can be valuable to guide the scale up phase by enhancing the design and delivery model.