Weather index insurance in South Africa: An integrated approach to farmers’ willingness-to-pay intentions

Abstract

Weather index insurance is an emerging risk management tool in the African agricultural landscape specifically designed for low-income smallholder farmers that are vulnerable to weather related hazards. This insurance solution remain unexplored and commercially unavailable within the South African environment. However, there is an ever-increasing need for risk transfer mechanisms, particularly in the era of climate change and increasing drought events. The paper assesses potential demand for index-based insurance among maize farmers through a hypothetical market scenario, investigating willingness-to-pay and prevalent factors influencing the decision-making process. Quantitative research design was used. Doing so entailed employing structured surveys which were completed by 224 farmers. From this number, 86% of farmers demonstrated positive intentions towards adopting index insurance. A structural model was then constructed which identified insurance culture and risk perception as impactful behavioural constructs. Logistic regression models identified gender, education, access to credit and group membership as significant socio-economic drivers influencing willingness-to-pay intentions. The research findings advance the understanding of the smallholder producer market in South Africa which may ultimately assist in directing future product design and distribution efforts.