Demand for weather index insurance: evidence from Indian cotton farmers

Purpose Adverse climatic conditions have significantly impacted agricultural production in India. To manage climate risk, weather index insurance (WII) is emerging as a useful tool to transfer risk. However, despite the potential advantages, the adoption of weather-based insurance remains low. Thus, this study aims to examine the factors influencing farmers’ willingness to pay (WTP) for WII. Design/methodology/approach A cross-sectional survey was conducted among 350 cotton farmers in the Virudhunagar district, selected through a multistage sampling approach, incorporating simple random sampling. Data were collected through personal interviews using a pre-tested questionnaire. The logit model is used to analyse how socioeconomic variables, risk aversion (determined using the multiple price list experiment) and risk perception (analysed using a risk matrix) affect weather insurance adoption. Findings Results show that 65% of the surveyed households are willing to participate in WII. Risk aversion and risk perception are positively and significantly associated with insurance uptake. Education, annual income, access to credit and weather-related yield loss also have a significant positive correlation with WTP. However, gender, family size, and access to irrigation are negatively associated with WTP. Research limitations/implications Future studies could be enhanced by including more diverse farm areas and considering other influential factors. Originality/value These findings can assist insurance companies and policymakers in understanding farmers’ risk behaviour and promoting the adoption of WII to improve farmers’ climate resilience.