In connection with the development of the insurance sector, a number of measures are being taken, and among them are development of agricultural insurance and the creation of a mechanism of agricultural insurance. In this regard, a model has already been defined, and the work of the Authority has been accelerated.
Nepal, a landlocked multiethnic, multilingual, multi-religious country, is situated in the Himalayan mountain region. The country can be divided broadly into three ecological zones: the lowland (17%), the midland (19%) and the mountain or highland (64%). In the midland and highland regions, the terrain is rugged, rainfall is low and the poor-quality soil is difficult to farm. Agricultural landholdings per household in these areas are the smallest in the country.
Insurance is a crucial financial service for the poor, but it constitutes a much smaller market among poor and low-income populations than credit and savings. Insurance is a fundamentally different type of financial service than savings and credit, requiring different sets of skills, financing delivery and institutional expertise. Thus, design of the insurance product is crucial to get right kind of responses from the poor or low-income classes. Microfinance could help making a savings or financing products attractive to a particular class of people because of their vulnerability in handling particular types of uncertainties.
In a bid to fight poverty and enhance productivity, small-scale farmers facing financial constraint and trapped in subsistence way of living should be integrated to the market. To realize this, the role of micro finance and insurance should be recognized. One of the bottlenecks in changing the life of the poor to better is lack of access to finance and credit. Currently both public and private banks and insurance companies are flourishing.
To help farmers quickly replant damaged crops due to extreme weather conditions and, thereby, help temper food inflation, the Department of Finance’s chief economist is pushing for the immediate rollout of the Insurance Commission’s agriculture microinsurance or “MicroAgri” framework. In an economic bulletin on Friday, Finance Undersecretary said the rise in inflation to 1.1 percent in November from the record-low of 0.4 percent in the previous month “can be attributed to the sharp rise in vegetable prices as a result of Typhoon ‘Lando,’” that hit many parts of Luzon, including farms and plantations, last October.
Agricultural microinsurance in the context of this discussion paper involves the broad question of how low-income farmers close to or below the poverty level can be indemnified for agricultural losses due to severe weather conditions – regardless of the level of the insured (micro: individual; meso: community, farmer association, etc.; macro: national institution, government).
Why are demand and renewal rates for microinsurance so low despite the important protection it may offer? To address the puzzle this paper provides a selective overview of the current state of research on demand for microinsurance. It first looks at the theoretical research and then reviews the empirical evidence on the factors influencing demand for insurance.
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