Prospective Demand for an Index-Based Microinsurance in Sri Lanka

Abstract

The objective of this study is to examine famers‟ willingness to pay for an index based microinsurance scheme (IBMS) for paddy crops to protect against production loss caused by natural disasters in Sri Lanka and to assess product preferences for this IBMS. The contingent valuation method (CV) was used to elicit the willingness to pay for the hypothetical IBMS. For product preferences, a conjoint analysis was conducted to study their relative importance and to discover the relationships between different attributes and the characteristics of the respondents. The results show that the interest in joining IBMS is 88% (SD=2.4%) overall. When willingness to pay is assessed, it is found that most potential purchasers would prefer a higher level than that offered by the existing conventional insurance plan. The results of the preference analyses demonstrate that for IBMS products can be adapted for specific locations in order to maintain demand. These findings provide strong support for launching IBMS in Sri Lanka.