Price, information and product quality: Explaining index insurance demand in Burkina Faso

Abstract

Index insurance is a promising avenue for addressing risk in developing countries, but pilot index insurance projects are rarely scaled-up because demand remains disappointingly low. This article studies an area-yield insurance product which generated high demand and sales in Burkina Faso, and was subsequently scaled up nationally. We exploit experimental and quasi-experimental variations to measure and compare the effect of price, information, and product quality on insurance demand. Our results suggest that price has an important effect on demand, while information also plays a role. However, the quasi-experimental variation in product quality across farmer groups does not affect insurance take-up. Demand is much lower during the scale-up, suggesting that implementation efforts during the pilot also matter. These findings show that high quality index insurance products can be attractive for farmers, but that price for value, along with other factors, remain major barriers to adoption. Our results also suggest that small-scale farmers may not fully understand the complex financial instruments offered to them commercially, with implications for the use of index insurance as a policy option to foster resilience.