Understanding the Dynamics of Crop Insurance Markets Through an Exploratory Model

Several government schemes and policy solutions have been designed in different parts of the world with an objective of developing a functioning market for crop insurance. Their mixed experience leaves us wanting for a better understanding of the dynamics surrounding this important policy topic, particularly in the wake of climate change. This paper makes an attempt in this direction through numerous simulations on an exploratory model built for this purpose. We observe the dominance of a demand–supply elasticity loop that could result in an exponential decay in insurance coverage, that is especially pronounced in higher risk geographies. Further, the most popular policy interventions, namely government subsidies and ‘index’ insurance, appear to be offering an insignificant contribution to the dynamics. Our rudimentary model opens up new dimensions for policy discourse around the market for risks in agriculture. A precise estimation of model parameters and a broader scrutiny of the structure are warranted before the model is exploited further.