The effect of coverage level and premium subsidy on farmers' participation in forest insurance: An empirical analysis of forest owners in Hunan Province of China
ABSTRACT In forest insurance policy, coverage level and premium subsidy are two important factors that affect farmers' decision to be insured. This paper uses data from a survey of farmers in Hunan Province of China. First, a single bounded dichotomous choice valuation method is used to estimate the average amount that the farmers are willing to pay (WTP) for forest insurance. The results show that farmers' average WTP is 0.65 RMB/acre (Chinese currency is referred as RMB) which is lower than the premium level prescribed in the existing forest insurance implementation program. Second, an acreltiple bound dichotomous choice valuation method is used to study farmers' WTP for acreltiple coverage levels. Results show that when coverage equals 500 RMB/acre, 1,000 RMB/acre, and 2,000 RMB/acre, the median value of the premium level of farmers' WTP is 0.922 RMB/acre, 1.954 RMB/acre and 2.893 RMB/acre, respectively. In a situation where the current premium rates are unchanged, and the coverage level is 500 RMB/acre, 1,000 RMB/acre, or 2,000 RMB/acre, the models predict the subsidy ratio should be 53.90, 51.15 and 63.84% respectively. Improving the coverage level of existing forest insurance policies can significantly increase farmers' expected rate of insurance.