Crop insurance as a climate risk management tool: Evidence from three districts of Punjab, Pakistan

Pakistan’s agricultural sector is increasingly vulnerable to climate change–induced shocks, posing serious risks to farm incomes and rural livelihoods. Although crop insurance has been promoted as a key risk-mitigation instrument, and several public and private schemes have been introduced—particularly in Punjab—farmer participation remains strikingly low. This study provides one of the first systematic assessments of farm households’ perceptions of climate-related risks, their awareness of crop insurance, and the coping mechanisms they adopt in response to climatic shocks. The analysis draws on primary survey data from 324 farmers across 27 mouzas (villages) in the districts of Bahawalpur, Gujrat, and Faisalabad. Descriptive findings reveal a pronounced perception–adoption gap: while 84% of respondents view climate hazards as a major threat to agriculture, only 21% are aware of crop insurance schemes, and fewer than 3% have ever purchased coverage. In the absence of formal insurance, farmers predominantly rely on informal credit networks, valued for their accessibility, flexibility, and trust-based nature. Econometric estimates using logit and probit models indicate that education and financial inclusion significantly increase the likelihood of insurance awareness, underscoring the central role of financial literacy in shaping adaptation decisions. Overall, the results highlight a substantial disconnect between farming communities and formal risk-management institutions in Pakistan. The study emphasizes the need for localized awareness campaigns, simplified enrolment procedures, credible institutional delivery mechanisms, and innovative public–private partnerships to position crop insurance as an effective resilience-building tool in Pakistan’s climate-vulnerable agricultural sector.