In Simple Words
Imagine an arcade game where every $1 step costs $2 to play because of electricity and venue rent; players refuse to play until modern technology cuts the venue's operating costs so low that the game costs only $1.20 per play.
Observed rainfall-insurance values
- Median bid for actual policies
- Rs.70
- Two Phase II policy estimates
- Rs.44 to Rs.54
Pooled bids and two Phase II payout estimates have different scopes. Payout estimates use historical data from Anantapur and Mahbubnagar only; no profitability proof.
See source →Research question
Micro-insurance markets often suffer from low voluntary adoption because retail commercial prices include administrative loading factors that push policy premiums well above actuarial expected payouts.
Participants
N = 1,978 farmers in Andhra Pradesh, India evaluating 4 distinct index policies.
Study Design
Becker-DeGroot-Marschak (BDM) elicitations comparing median farmer willingness to pay against actual actuarial expected values (Rs. 44–54) and market retail prices (Rs. 100–110).
Results
The median willingness to pay was Rs. 70 per policy, significantly exceeding the actuarial value of Rs. 44–54. This ratio falls directly within US retail insurance claim-to-premium benchmark ranges (64.7%–76.2%).
Takeaway
Utilize mobile payment infrastructure and automated weather data pipelines to compress administrative loading factors, enabling retail index insurance pricing below median smallholder willingness to pay.
Source and citation
See source →Read alongside the research
Plain-English glossary
Original explanations, informed by the references below. Examples are illustrations, not data from the studies above. The research text stays unchanged.
- Median
The middle number after arranging the values from smallest to largest. If there are two middle numbers, use their average.
ExampleFor the values 2, 4 and 12, the middle value is 4. The median is 4.
NIST · Measures of location ↗Read more about median →