Does subsidized MPCI crowds out traditional market-based hail insurance in the Netherlands?

Abstract

Purpose The purpose of this paper is to determine which factors influence the choice to adopt subsidized multi-peril crop insurance (MPCI) in the Netherlands and whether prior hail insurance uptake is one of the determinants of MPCI adoption. In addition, it is analyzed whether subsidized MPCI has reduced disaster relief spending. Design/methodology/approach Cross-sectional survey with 512 respondents using a stratified design comprising MPCI adopters and non-adopters sampled from the Dutch national census data base. The national census, including information on subsidized MPCI adoption from 2010 up to and including 2015, was supplemented with information on (prior) traditional market-based hail insurance uptake, and other underlying determining factors were elicited. Logistic regression analysis was used to determine which factors influence the choice to adopt MPCI. Findings Analysis of MPCI adoption reveals that subsidized MPCI mainly substituted for market-based hail insurance uptake up to now. Growers who did not insure against hail in the past were hardly reached. Approximately, three-quarter of MPCI adopters insured hail prior to market introduction of MPCI. In the arable sector, MPCI adoption was 2.89 (p<0.01) more likely for prior hail insurance adopters compared to non-adopters, while it was 9.67 (p<0.01) more likely in the fruit sector. Research limitations/implications In the arable sector, it is expected that MPCI uptake in the coming years will reach more prior non-adopters of hail insurance as demand is expected to increase. Prior hail insurance adopters in the arable sector can be seen as the early MPCI adopters. In the fruit sector, adoption rates are already at a relative high level and a further significant increase by targeting non-adopters of hail insurance is not likely. Originality/value Governmental support has crowded out to some extend traditional market-based hail insurance in the Netherlands. Since the Common Agricultural Policy of the European Union is creating more momentum to subsidize crop insurance more member states with a long history of a mature hail insurance market may be confronted with similar crowding-out effects.