A Reconsideration of Crop Insurance as Climate Change Adaptation Approach

Abstract

Adaptation to the adverse effects of climate change is an urgent issue and a critical part of the development agenda, especially in countries where the agricultural sector accounts for a large part of the industrial structure. Although insurance has attracted attention in the context of adaptation to losses caused by climate change, many studies of climate change adaptation in developing countries have overlooked the existing literature on crop insurance in the fields of agronomics and development economics. Therefore, this study aims to link the accumulated discussion on crop insurance with that on climate change adaptation. Several theoretical studies on indemnity crop insurance have already been undertaken in developed countries. Recently, a new approach––index-based insurance—has attracted particular attention as an adaptation measure for climate change. In the first part of this paper, I marshal the research on both types of crop insurance and aim to bring unrevealed issues to light. Economists have studied crop insurance, but most have devoted their efforts to increasing the uptake rate, especially in developing countries; few studies have discussed insurance in association with climate change adaptation. Even though some articles related to climate change adaptation have proposed that insurance could contribute to the improvement of people’s adaptation capacity, the effect of insurance has been insufficiently validated in the context of climate change adaptation. The next crucial step in figuring out the effectiveness of insurance as climate change adaptation is to understand the effect of insurance on the individual decision-making process that leads to adaptation behavior. In fact, several studies have already revealed that insurance affects farmers’ decision-making processes and behaviors, which might be the key to understanding how insurance has an effect on farmers’ climate change adaptation capacities. In the latter sections of this paper, I review this research and suggest further empirical research topics.

Keywords: Climate Change Adaptation, Crop Insurance