A Research On The Demand And Supply Of Agricultural Insurance In Hubei Province

This Research is based on some important indications of the agricultural insurance in Hubei province from 1983 to 2005, and the survey data into 501 farmers and 50 insurance branches in the province. Using basic economic principles and econometrics tools, we get the demand curve and the supply curve of agricultural insurance in Hubei province. Finally, we forecast the potential demand of agricultural insurance in Hubei province, and the prospect of agricultural insurance market.The main conclusions we draw from the research are as followed. First, the demand for agricultural insurance is elastic with respect to premium in Hubei at present state. Second, the market structure is monopoly at the primary stage of agricultural insurance program, thus if the government prescribe the price of agricultural insurance to maximize the social welfare, the insurance company who delivers the product confronts a definite loss. So administration and operation (A&O) expense subsidy and preferential treatment are needed to encourage the insurance company. When the company's experience and ability increase enough to cover the moral hazard and adverse selection and most of their systematic risk, it will gain a profit at last. But before that, it should be subsidized. And because of the externality of agricultural insurance supply, government should invest in the initial cost of the research, publicity and regulation of agricultural insurance. Third, because it is possible to make a profit in agricultural insurance, the better way to develop agricultural insurance is to entitle the insurance company to deliver and share risk and profit between the government and insurance company, instead of the government directly providing agricultural insurance product. Last, we estimated the potential demand in Hubei agricultural insurance market. In the economic background of 2005, the largest possible Willing-to-Pay of Hubei farmers in agricultural insurance totaled RMBï¿¥2.653 billion and averaged RMBï¿¥261 at household level. Price discrimination and incentive mechanism is deemed to be effective prescription for mitigating adverse selection and reducing moral hazard.