Exploring farmers’ willingness to pay for index-based insurance in Nepal

This study explores smallholder farmers’ willingness to pay (WTP) for hypothetical index-based flood insurance (IBFI) for crops in flood-prone areas of the Karnali river basin in western Nepal. A structured questionnaire was developed to elicit data from 705 farmers. By employing logistic regression analysis, the study identifies factors probably affecting farmers’ WTP. As the most significant factors the study finds the age, the years of agricultural experience, the basis risk sensitivity, the education and the flood frequency experience during the past five years. Additionally, the study identifies that the education, participation in local scheme for disasters, risk aversion and trust towards insurance companies might be related to the lack of interest in the general concept of flood insurance for crops. The findings of this study implicate that factors affecting the WTP and interest in insurance are important to be considered when designing insurance products for climate related risks