Demand, impacts and the consequences of mis-designed crop insurance: Evidence from admin data of nationwide program in Thailand

This paper uses big administrative data to understand patterns of demand and the potential impacts of Thailand’s nationwide rice crop insurance program, which has been the country’s largest program since 2011. Similar to other indemnity-based crop insurance programs worldwide, the current program thus faces several inefficiencies. Delay and inaccurate loss verification has reduced value of this insurance to farmers and so suppressed demand. The non-transparency of loss verification along with the lack of plot-level risk information has reduced appetite from insurers and resulted in high premium costs. The current program ends up with less than 1% (and declining) voluntary purchases and has been financed mainly as fully subsidized program. This paper aims to explore potential consequences of the mis-designed programs and draw out key implications for the design of more sustainable program. The paper tries to answer two research questions: (1) What determine patterns and dynamics of demand for crop insurance and how might variation of quality, explore to government support, mispricing could affect insurance demand? (2) What might be potential impacts of crop insurance on insured households’ debt repayment, investment and self-insurance incentives, and how might these impacts vary by insurance quality? Results from this paper could reflect heterogeneity in the demand and impacts as well as the economic consequences of mis-designing crop insurance program. These could shed light towards rethinking and redesigning a more sustainable crop.