Crop Insurance in the Philippines
Motivation
Farming households in developing countries face enormous risks from natural hazards. The adverse consequences of households bearing this risk are well known and include direct costs to the households welfare as well as depressed investment and access to credit. Unfortunately, insurance markets to manage this risk have failed to develop for most types of natural hazards.
This market failure motivated a project on crop insurance in the Philippines based on a randomized field experiment coupled with comprehensive data collection. The study was principally designed to understand the relative importance of, and mechanisms behind, the various possible information asymmetries in crop insurance contracts. The goal of the project is to understand to what degree these information asymmetries contribute to the failure of the crop insurance market and how progress can be made in designing new risk management products to shift risks in agricultural production from households to financial markets. The project was also designed to examine the role of crop insurance in investment decisions and the process of social learning of trust in insurance.
This market failure motivated a project on crop insurance in the Philippines based on a randomized field experiment coupled with comprehensive data collection. The study was principally designed to understand the relative importance of, and mechanisms behind, the various possible information asymmetries in crop insurance contracts. The goal of the project is to understand to what degree these information asymmetries contribute to the failure of the crop insurance market and how progress can be made in designing new risk management products to shift risks in agricultural production from households to financial markets. The project was also designed to examine the role of crop insurance in investment decisions and the process of social learning of trust in insurance.
Funding
Australian Agency for International Development, National Science Foundation, Sasakawa Fund of the Economic Growth Center at Yale University, The Geneva Association for Insurance Economics, The Russell Sage Foundation.
Implementation
The project was implemented in the province of Camarines Sur in Bicol region of the Philippines. A pilot was conducted during the 2010 wet season, followed by three experimental rounds, over the 2010-11 dry season, the 2011 wet season and the 2011-12 dry season. Over 500 farmers with more than 1500 plots participated in the study.
The implementation was coordinated by Innovations for Poverty Action and managed in the field by Zoe VanGelder and Peter Srouji. Our survey and implementation team consisted of Charlemagne Losaria, Ma. Sylvia Tuason, Marc Parafina, Emmanuel "Boy" Abejero, Angeles Rey Montañez, Mary Jane Borbor, Mary Jane Rañon, Magelende Luisa "Maj" Falabi, Peter John Gabo, Emily Aspe, Andrea Deuda, Catherina Aberca, Allan San Jose, Mien Abillon, Ronald Maravilla, Melba Seña, Mariebelle Reyes, Randy Villanueva, Jay Pineda, Jason Parafina, Leoncio Elopre, Jr., Gerry Piamonte, Eden Velarde and Marlin Imperial.
The implementation was coordinated by Innovations for Poverty Action and managed in the field by Zoe VanGelder and Peter Srouji. Our survey and implementation team consisted of Charlemagne Losaria, Ma. Sylvia Tuason, Marc Parafina, Emmanuel "Boy" Abejero, Angeles Rey Montañez, Mary Jane Borbor, Mary Jane Rañon, Magelende Luisa "Maj" Falabi, Peter John Gabo, Emily Aspe, Andrea Deuda, Catherina Aberca, Allan San Jose, Mien Abillon, Ronald Maravilla, Melba Seña, Mariebelle Reyes, Randy Villanueva, Jay Pineda, Jason Parafina, Leoncio Elopre, Jr., Gerry Piamonte, Eden Velarde and Marlin Imperial.
Design
Farmers who were tilling two or more irrigated rice plots (0.25-2.5 hectares) were invited to participate. Once enrolled, each plot was independently verified as being tilled by the enrolled farmer (by collaboration with the local National Irrigation Administration). Each farmer was then asked, if she could choose one plot to be insured (for free), which one she would prefer. Next, farmers were randomly selected to receive free insurance on a random sample of their plots. Each farmers' first-choice plot was allowed a slightly higher chance of receiving free insurance, generating incentives for truth telling in the plot choice decision.
Data Collection
The data generated by the experiments was complemented with administrative data from the insurance provider, geospatial data on the location of plots and environmental characteristics and three survey rounds (1 baseline per farmer, 2 follow-up surveys per season):
Baseline: Farmer characteristics, income and consumptions, asset position and social network contacts; trust and willingness-to-pay measures; plot characteristics (e.g. susceptibility to floods, diseases), ownership and contractual arrangements.
Mid-season survey: Expenditures by plot through crop establishment, planting times.
Follow-up survey: Expenditures by plot from crop establishment, harvest and damages. Consumption and transfers. Trust and willingness-to-pay measures.
Baseline: Farmer characteristics, income and consumptions, asset position and social network contacts; trust and willingness-to-pay measures; plot characteristics (e.g. susceptibility to floods, diseases), ownership and contractual arrangements.
Mid-season survey: Expenditures by plot through crop establishment, planting times.
Follow-up survey: Expenditures by plot from crop establishment, harvest and damages. Consumption and transfers. Trust and willingness-to-pay measures.