The steep upward-rising damage trend incurred by natural hazard risk as a result of climate change is already inflating economic losses in agriculture, as well as the costs of protection and recovery instruments. This is aggravated by the unprecedented economic crises the EU has faced since the summer 2007, which sparks further concerns about the solvency of the instruments used by states and insurers to finance the increasing costs of natural disasters. In this context, collaboration of public and insurance sectors through Public-Private Partnerships (PPPs) for crop insurance provision has been increasingly advocated. PPPs are a means to balance out the traditional solvency concerns of the insurance industry and society’s affordability and equity targets, while reducing the overall financial burden of natural disasters and other risks. Most recently the EU has encouraged the development of income insurance in the context of the new CAP 2014-2020. While additional public funds have been made available for its implementation, a more in-depth knowledge of insurance demand dynamics is still necessary to make the most out of income insurance. This paper explores the viability of income insurance schemes in the framework of the CAP reform, developing a case study in the Regione Emilia Romagna (RER) in Italy. First, insurance supply costs are assessed using most recent actuarial data. The paper then develops and applies a methodology to estimate income insurance demand for the Agricultural Districts in the RER, based on Revealed Preferences Models and the Certainty Equivalent Theory. Results show that WTP for income insurance is close to the average risk premium, supporting in principle the development of income insurance.
- jel: Q14, Q17, Q18, Q20
- Keywords: Crop insurance, Income insurance, Insurance demand, Revealed preferences, Italy.