Modelling the switch from hail insurance to antihail nets

We analyse the impact of the antihail net promotion on the actuarial soundness of the hail insurance market. Specifically, we present a simple model showing that, in the presence of an imperfect insurance market, incentives for antihail nets could cause low-risk farmers to exit the insurance market more likely than high-risk ones. This induces a typical adverse selection problem. The theoretical model predictions are corroborated by an empirical investigation. Based on a fixed-effect conditional logit regression, we show that a higher per-hectare output value and a location strongly affected by hail both increase the chance that a plot is hedged through antihail nets.