Weather Insured Savings Accounts

This study uses a laboratory experiment in Gujarat, India to assess consumers' relative valuations of savings versus insurance when planning for risky rainfall. It aims to measure potential demand for a new type of financial product that combines savings and rainfall insurance, a Weather Insured Savings Account (WISA). Microinsurance is designed to bring insurance products to the poor, but these new products are still being refined to accurately meet the needs of their target populations. The study proposes that linking insurance to savings may be an effective mechanism for providing risk protection to poor farmers. It first develops a model to predict how demand for a WISA would change with its type defined as the proportion of insurance versus savings that the WISA provides. It then presents results of a laboratory experiment that attempts to test predictions of the model and calculate the optimal WISA type. Study findings indicate that:

• Most farmers prefer pure insurance or pure savings to any mixture of the two;
• This preference is most pronounced among those who are more risk averse;
• Introduction of a WISA is unlikely to be successful;
• Mixed saving and insurance products require further investigation.