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The influence of past experience on farmers’ preferences for hog insurance products: a natural experiment and choice experiment in China

Abstract

Hog insurance is essential for the safety of pork production in developing countries. Although livestock insurance has been found to have positive impacts on farmers’ welfare and agricultural production, it has not lived up to its full potential. In this study, a natural experiment combined with a choice experiment is conducted among hog farms in four townships in China to explore the influence of past experience with hog insurance on farmers’ preferences and willingness to pay (WTP) for hog insurance attributes. Employing the random parameter logit model, we find robust evidence that farmers have heterogeneous preferences for insurance attributes and attach great importance to the involvement of government in insurance operation. Furthermore, farmers’ past insurance experience plays a vital role in their demand for hog insurance and significantly changes their WTP for insurance attributes.

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Fig. 1

Notes

  1. 1.

    Statistics show that as much as 97.82% of hog producers are small-sized farmers who raise less than 100 hogs (China Animal Husbandry Statistical Yearbook 2015).

  2. 2.

    The context as well as the natural experiment in our study are the same as in Rao and Zhang (2020) but the focus of these two studies is different. Specifically, Rao and Zhang mainly examined the impact of livestock insurance on farmers’ hazardous actions as well as production decisions by exploiting a two-year natural experiment. However, using one-year experimental data, this paper focuses on exploring the impact of past experience on farmers’ preferences for hog insurance attributes. Similar descriptions of the hog insurance programme and the natural experiment in Jiyuan County can be found in both papers.

  3. 3.

    The claims data provided by the local insurance company show that 94% of the insured farmers had been compensated at least once during the pilot project. Thus, almost all farmers who participated in the hog insurance programme gained knowledge of hog insurance, from enrollment to making a claim.

  4. 4.

    Although the hog insurance programme is voluntary, the local government and insurance company commissioned the animal husbandry workers in each township to advertise the benefits of hog insurance and strongly encouraged eligible farmers to participate in the hog insurance programme. Therefore, the participation rate of the pilot townships is very high (the participation rate in our data is around 90%).

  5. 5.

    These include specified swine diseases (e.g. pseudorabies, swine erysipelas, swine fever and foot and mouth disease), natural disasters (e.g. earthquakes, flooding and mountain landslides) and accidents (e.g. fire and explosions).

  6. 6.

    If there are too many attributes and levels in the discrete choice experiment, the complicated experimental task will exert a heavy cognitive burden on the interviewee (Hanley et al. 2001). Taking into account the importance of attributes of hog insurance products and the possible response fatigue, we finally chose five attributes.

  7. 7.

    Article 46 of the Agriculture Law (2003) states that the government has to establish a policy-oriented agriculture insurance system, encourage and support agriculture operators to organise insurance programmes for agriculture production and activities.

  8. 8.

    For each respondent, interviewers will read a narrative for them, which mainly states the purpose of the choice experiment, provides an example for farmers to understand the attributes of hog insurance and also explains the procedure of making choices from the different options in the different choice sets.

  9. 9.

    Farmers with hog insurance experience are those in the treatment group, whereas farmers in the control group are treated as inexperienced.

  10. 10.

    Because the attributes in our study are effect coded, the ratio should be doubled to get the actual WTP (Lusk et al. 2003).

  11. 11.

    The selection criterion is the significance of the standard deviation parameters of the attribute variables.

  12. 12.

    Almost all farmers (95% in both groups) enrolled in the unified sow insurance programme in 2012, and only farmers in the treatment group participated in the pilot hog insurance programme in 2013. Since some terms of the hog insurance and sow insurance are quite different (especially the claims terms), it is likely that the experience of participation in the pilot hog insurance programme has an impact on farmers’ preferences for hog insurance products. We refer to this as the ‘experience effect’. It should be noted that the experience effect we measure here is a total effect. We acknowledge that the salience effect may confound the experience effect since farmers completed the choice experiment right after the pilot hog insurance programme. Unfortunately, we are not able to distinguish the experience effect from the salience effect due to data limitations.

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Acknowledgements

This research was supported by Zhejiang Provincial Natural Science Foundation of China under Grant No. LZ17G030001, Humanities and Social Sciences Foundation of Ministry of Education of China (20YJA790093), Chinese National Social Science Foundation (19ZDA117) and the Fundamental Research Funds for the Central Universities.

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Appendices

Appendix 1

See Tables

Table 6 Robustness test for block effects (RPL model)

6,

Table 7 Robustness test for scale heterogeneity (RPL model)

7.

Appendix 2

Narrative to be read to respodents:

Agricultural insurance is an important strategy to disperse farmers’ production risks. Hog insurance products are one type of agricultural insurance product. One of the purposes of this study is to design hog insurance clauses that meet the needs of farmers. Your responses are important and will be completely confidential and under no circumstances will your responses be identifiable. We sincerely hope for your support. Thank you!

Assume that you are going to purchase hog insurance products. If you could only choose from the following two choices or opt-out, which one would you choose? (Please check only one of the boxes for each choice set).

Note: Interviewers should explain the meanings of each attribute to respondents and provide an example to explain coverage and excess attributes.

Insurance type: policy-oriented insurance (government involvement) or commercial insurance (no government involvement).

Coverage: the amount of maximum indemnity that you could receive when a hog dies.

Excess: the base animal weight from which any indemnity will be paid.

Time: the time it takes to receive payment from the insurer after death was verified.

Premium: the premium paid by you.

Example: You have an insured hog whose insured amount (i.e. coverage level) is CNY 500. The insurance company pays the indemnity based on the weight of the dead hog, which is CNY 5 per kg (CNY 500/100 kg = CNY 5/kg). That is, if the dead weight of the hog is 30 kg, then the insurance company will pay you 5 × 30 = CNY 150.

Below, we will show you different insurance products bundled by different levels of attributes. There is a total of eight choice sets. Please compare and choose products A and B in each choice set, or you can choose to opt-out (i.e. product C). The attribute levels of hog insurance are hypothetical and no actual monetary transactions will occur. However, please try your best to consider a reality-based mindset.

(Please check only one of the boxes for this choice set)

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Cai, Q., Ding, Y., Tuvey, C. et al. The influence of past experience on farmers’ preferences for hog insurance products: a natural experiment and choice experiment in China. Geneva Pap Risk Insur Issues Pract 46, 399–421 (2021). https://doi.org/10.1057/s41288-021-00209-7

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Keywords

  • Insurance experience
  • Choice experiment
  • Willingness to pay
  • Hog insurance