Timely insurance compensation and insurance adoption among women smallholders in Kenya

Agricultural insurance allows farmers to mitigate risk from adverse weather shocks, preventing systematic underinvestment in agriculture, and smooth consumption ex-post. High transaction costs have inhibited agricultural insurance markets in developing countries. While supply has improved with the availability of new technology, demand for insurance remains stubbornly low at around 10\% even in the presence of subsidies (Carter et al 2017). In a traditional insurance contract, insurers collect premium payments at the beginning of a growing season when farmers face less liquidity, and disburse compensation for losses over an often unannounced period post-harvest. Evidence shows that adoption of insurance is lower among those with inadequate liquidity to make large upfront premium payments, inconsistent time preferences and high time discounting (Cole et al 2013). Basis risk and compensation payment delays contribute to an environment of poor trust in insurance providers (Cai et al 2016), a constraint particularly relevant for women (Clarke and Kumar, 2015, Akter et al. 2016). In this study, we leverage recent advancements in digitally-enabled yield estimation and financial technology to allow farmers greater choice in structuring compensation transfers from insurance and study the effects on demand. We pilot this innovation through a randomized control design over one agricultural season among 1600 farmers in Kenya. We will estimate differences in willingness-to-pay (WTP) and uptake for the “timely pay” insurance product compared to the standard insurance product, and analyse these differences for heterogeneity across gender and other characteristics captured through a single in-person survey round. We measure time preferences at multiple points through the season using an innovative USSD-code based platform to understand the effect of seasonal liquidity and preferences on the timing and size of transfers.