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Climate Insurance for Dry Zone Farmers in Sri Lanka

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... The insurance covers the main climate-related risks (floods, droughts, dry spells, and excess water) and damages caused by pests and diseases and wild elephant attacks. However, the insurance beneficiaries of AAIB were mostly limited to the requirement of obtaining agricultural loans from formal credit sources (Wickramasinghe, 2019). ...
... Despite the presence of crop insurance in Sri Lanka for more than five decades with the involvement of both government and private sectors, the level of penetration among the farmers was very low. It has been reported that, on average, only 2.45 % of the paddy extent cultivated is under any crop insurance program from 1998 to 2017 (Wickramasinghe, 2019). ...
... The fund received money from the crop levy imposed on all the registered financial institutes at the rate of 1 % of the profit after tax payable to the fund. However, the NITF has not made any compensation payments for the loan protection scheme to date due to a lack of awareness of this program among the lenders (Wickramasinghe, 2019). ...
Article
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Drought is an almost annual phenomenon affecting many parts of Sri Lanka, causing huge damage to agriculture and losses to the broader economy in general and farmers in particular. Climate change threatens to exacerbate these risks. Risk transfer mechanisms, such as crop insurance schemes, may help buffer farmers against these hazards and has gained attention as an adaptation response to become an important element in agricultural risk management. Despite the numerous efforts over several decades to popularize crop insurance as a risk transfer tool in the country under heavy subsidies, farmers' voluntary enrollment in crop insurance has been very low. Therefore, understanding the farmers' behaviors and attitudes towards crop insurance and the potential of such programs in emerging climate-induced vulnerabilities is critical to enhancing the welfare of the farming community. This paper assesses the factors that influence willingness to enroll for crop insurance among farmers in irrigated and rainfed farming system in the drought-prone North Central Province of Sri Lanka using a logistic regression model. The study sample consisted of 149 irrigated farmers and 51 rainfed farmers selected randomly. Regression results show that farmer’s age, agriculture as the primary source of income, irrigation as the source of water, and availability of supplementary water source are significantly related to willingness to pay (WTP) for insurance. The overall results indicate the role of household socioeconomic factors and their contextualized risk perceptions shape the adoption decision of crop insurance. The findings of the paper contribute to that end through primary data from a rainfed and irrigated areas in the province. Although the present research was carried out in a limited area, the study area is dominated by the traditional nature of agricultural practices by smallholder farmers in a drought exposed environment, the findings of the study should apply to the rest of the dry zone areas in the country. The results on factors affecting farmers' willingness to purchase crop insurance assist the practitioners and policymakers to draft the guidelines and strategies for more inclusive interventions for agriculture risk management and building farmer resilience.
... However, it has been reported that the level of uptake of crop insurance programs is low (CBSL 2017; Wickramasinghe 2019). The reasons for the low penetration of these conventional indemnity insurance products are: (i) lack of awareness of insurance, (ii) lack of trust in insurance providers, (iii) high transaction costs, (iv) delay in indemnity payments, and (v) lack of transparency in loss assessments (Rambukwella et al. 2007;Wickramasinghe 2019). ...
... However, the low density of weather stations and lack of quality and timely weather information was challenging given the variations in local microclimates. These variations determine the base risks in WII products (Wickramasinghe 2019). ...
Technical Report
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Drought is an almost annual phenomenon in Sri Lanka, occurring at varying degrees of severity and affecting many parts of the country. These droughts cause significant damage to agriculture and other economic and social activities. This paper assesses the effectiveness of satellite-based weather Index insurance (WII) bundled with real-time climate and agronomic advisory services provided to farmers’ mobile phones. The aim is to enhance the drought resilience of diverse groups of farmers by providing solutions and strategies to extend bundled insurance products to more people and address equity issues. In this pilot, an insurance product was introduced to farmers in a village in the North Central Dry Zone of Sri Lanka. WII products are seen as a part of the solution to reducing farmers’ risk to climate change. However, in many places, the structure of insurance schemes in the agriculture sector has failed to reach small-scale and marginal farmers who are most in need of risk transfer mechanisms. Based on a farmer survey, we extracted lessons from implementing a bundled insurance scheme as a pilot project to explore the utility of farmer organizations as an entry point for engaging different farmer groups and ensuring they can understand the WII insurance products and can make informed choices. The survey results show that efforts made at the outset to understand contextual issues and challenges contributed to an effective product design and rollout approach. The rollout was more effective due in part to a partnership with an established local organization while adopting an aggregator model. Covid-19 mobility restrictions prevented full implementation of the rollout. Index insurance bundled with mobile weather and agronomic advisories increased farmer resilience and reached diverse groups. Farmers emphasized that being able to assess the costs and benefits based on understanding how key elements of the product work is key to their future engagement with such products, which highlights the importance of investing in awareness raising through a blend of print, verbal and visual tools that make complex products understandable to stakeholders with low levels of literacy
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