Weather Index-based Insurance Research Articles

Climate Smart Agriculture: A Roadmap to Sustainable Food Security

Climate change (CC) and climate variability (CV) are causing irregular precipitation, rising sea levels, and frequent extreme weather events, which threaten global agricultural crop production through prolonged droughts, floods, and shifting agroclimatic zones. Addressing greenhouse gas emissions and ensuring food security are among the greatest challenges of this century. Climate Smart Agriculture (CSA) emerges as a global strategy to enhance food productivity amid these uncertainties. CSA aims to create climate-resilient agricultural systems that increase soil health, water, and nutrient efficiency, provide stable yields, and reduce greenhouse gas emissions. By improving farmers' incomes and resilience to climate impacts, CSA contributes to both climate change mitigation and adaptation. Future CSA development directions include leveraging advanced internet technology for secure agricultural information, optimizing cropping patterns and management, integrating "internet + weather" services, and implementing agricultural weather index-based insurance. These strategies offer new pathways for ecological protection, green agricultural development, and climate change mitigation.

Be Happy, Be Loyal? Exploring Drivers for Renewal of Mobile-Delivered Index Insurance

Agricultural microinsurance is a promising risk management tool for smallholder farmers. However, adoption rates remain low and only a small share of farmers renew their policy after the first period. With the increasing availability of cell phones, mobile-delivered insurance is gaining importance on the market. As for any agricultural microinsurance, it is essential for the longevity of a mobile-delivered insurance scheme to retain a solid customer base. To date, it is unknown what drives the decision to renew a mobile-delivered agricultural microinsurance policy. We address this question by performing mean comparisons and logistic regressions based on primary data collected from 479 smallholder farmers in Mali who purchased a mobile-delivered weather index-based insurance in 2020. Results show that the level of satisfaction with the insurance product was considerably higher among farmers who renewed. We found low levels of understanding of the product among all clients, but especially among those who did not renew. Both factors were confirmed as drivers for renewal. Consistent with previous findings, receiving a payout had the strongest effect on the decision to renew. We conclude that additional measures to foster client satisfaction as well as to promote understanding of agricultural insurance among smallholder farmers are highly recommended.

Effects of weather index insurance adoption on household food consumption and investment in agricultural inputs in Ethiopia

Weather index insurance is an innovative pro-poor climate risk management strategy that can benefit the poor. But evidence on the welfare impact of this innovation is scant. This study examines the impact of adoption of weather index-based insurance (IBI) for crops on household food consumption and investment in agricultural inputs using the difference-in-difference estimator. Results indicate that adoption of insurance has causally increased household food consumption and investment in high-risk high-return agricultural inputs. Further, accounting for the intensity of adoption, results suggest that repeated uptake of weather index insurance has cumulative lasting effect on household food consumption and investment in agricultural inputs.

Needs of Extension Agents on Techniques for Climate-Smart Rice Production in North-Central, Nigeria

The study assessed the competency need of extension agents on Climate-Smart Agricultural Techniques (CSATs) for rice production in north-central, Nigeria. A multi-stage sampling procedure was used in selecting 88 respondents. Data collected with the aid of a questionnaire were analyzed with descriptive statistics and Borich needs model analysis. The result showed that their competencies in specific practices like the ability to promote index-based weather insurance ( = 1.00), operating alternate wet and dry technique (= 1.06), prime seeds with micronutrients (= 1.66) were low. Areas of competency upgrade as indicated by the mean weighted discrepancy scores were in teaching farmers about operating alternate wet and dry techniques (MWDS = 4.21), multiple inlet irrigation (MWDS = 2.98), site-specific nutrients managements (MWDS = 2.95), cropping calendar (MWDS= 2.42), climate information services (MWDS = 2.29). Training is needed in areas afore mentioned. Extension organizations should incorporate those areas discovered from the research into extension agents’ curriculum activities for adequate training. Extension agents should also be given opportunities to upgrade their competencies by attending intensive seminars and workshops in research institutions while in service.

Review article: Design and evaluation of weather index insurance for multi-hazard resilience and food insecurity

Abstract. Ensuring food security against climate risks has been a growing challenge recently. Weather index insurance has been pointed out as a tool for increasing the financial resilience of food production. However, the multi-hazard insurance design needs to be better understood. This paper aims to review weather index insurance design for food security resilience, including the methodology for calculating natural hazards' indices, vulnerability assessment, and risk pricing. We searched for relevant research papers in the Scopus database using the Preferred Reporting Items for Systematic reviews and Meta-Analyses (PRISMA) protocol. Initially, 364 peer-reviewed papers from 1 January 2010 to 19 February 2022 were screened for bibliometric analysis. Then, the 26 most relevant papers from the last 5 years were systematically analyzed. Our results demonstrate that despite a significant research effort on index insurance, most papers focused on food production. However, research considering other aspects of food security, such as transportation, storage, and distribution, is lacking. Most research focuses on droughts. Other hazards, such as extreme temperature variation, excessive rainfall, and wildfires, were poorly covered. Most studies considered only single-hazard risk, and the multi-hazard risk studies assumed independence between hazards, neglecting the synergy hypothesis between hazards. Lastly, we proposed a conceptual framework that illustrates design paths for a generalized weather index insurance design and evaluation. Solutions for addressing multi-hazard problems are considered. An illustrative example demonstrates the importance of testing the multi-hazard risk hypothesis for weather-based index insurance design for soybean production in Brazil.

Does weather index-based insurance adoption influence Cocoa Output? An endogenous swicth regression approach

ABSTRACT Agriculture is the most weather-dependent and risky sector where it is unpredictable when a season will be profitable during harvest. Droughts and floods may increase the risk of weather-related catastrophes in agriculture. Weather index Insurance has been widely recommended for decades to control weather risk. 600 Ashanti cocoa producers were surveyed to see how weather index insurance adoption affects cocoa output in Ghana. The endogenous switching regression (ESR) technique coupled with probit models were employed in this study. Cocoa bean production was 30.8 percent whiles only 15.8% of cocoa farmers knew about weather index insurance. The average annual farm income, off-farm, and remittances were 7.40, 7.26, and 6.61, respectively. Weather index insurance adoption and cocoa output were positively influenced by cocoa farm age, gender, education, awareness, and access to finance. We found that weather index insurance negatively influences cocoa output in Ghana due to inadequate information on insurance among farmers, lack of education, lack of awareness, and access to credit. Our findings will help Ghana Agricultural Insurance Pool and the government improve accessibility, affordability, and awareness for cocoa growers in the region and beyond. The findings will add to weather index insurance literature and improve agriculture risk.

A Review of Climate-Smart Agriculture: Recent Advancements, Challenges, and Future Directions

Global climate change has posed serious threats to agricultural production. Reducing greenhouse gas (GHG) emissions and ensuring food security are considered the greatest challenges in this century. Climate-smart agriculture (CSA) is a concept that can provide a solution to the challenges that agricultural development faces. It can do so in a sustainable way by increasing adaptability, decreasing GHG emissions, and ensuring national food security. So far, little research has systematically reviewed the progresses in CSA in developing and in developed countries. A review on the recent advancements, challenges, and future directions of CSA will be quite timely and valuable. In this paper, the definition and development goals of CSA are identified. Then, the recent advancements of CSA in developing and in developed countries are reviewed. The existing problems and challenges in CSA are analyzed and pointed out. Finally, the proposals on prospects and directions for CSA in the future are proposed. Using advanced internet technology to ensure agricultural information security, improvement of cropping patterns, and management techniques, carrying out “internet + weather” service and improving the quality of agricultural service, and conducting agricultural weather index-based insurance are considered as the main direction of future development of CSA. This review provides new ideas and strategies for strengthening ecological environmental protection, promoting agricultural green development, and mitigating climate change.

Prospects for weather-indexed insurance for blueberry growers

PurposeThe authors investigate whether an index-based weather insurance (WII) product can complement or replace existing traditional crop yield insurance for mitigating farmers' financial risks, with an application to blueberry growers in British Columbia (BC).Design/methodology/approachA hybrid model combining expected utility (EU) and prospect values is developed to analyse farmers' demand for WII.FindingsWhile weather data are used to investigate supply elements, a hybrid model combining EU theory and prospect theory (PT) is developed to analyse farmers' demand for WII. On the supply side, a quality index is constructed and the relationship between the quality index and key weather parameters is quantified using a partial least squares structural model. The authors then model weather parameters via time-series analysis and statistical distributions to provide reasonable estimates for calculating actuarially sound insurance premiums for a rainfall indexed, insurance product. This model indicates that decreases in the proportion of a blueberry grower's total revenue and revenue volatility will decrease the possibility that they participate in WII. At the same time, an increase in the value loss aversion coefficient and WII's basis risk further leads to less demand for WII. In short, a grower may decide not to participate in WII at an actuarially fair premium due to the combined effects of the above factors. Overall, while the supply analysis enables us to demonstrate that WII can potentially help in mitigating farmers' financial risks, it turns out that, on the demand side, blueberry growers are unwilling to pay for such a product without large government subsidies.Originality/valueThe authors argue that the demand for insurance may be affected by the level and the volatility of a berry grower's total revenue. Hence, the authors propose a hybrid expression that assumes a farmer seeks to maximize the total utility function to capture the rational and intuitive parts of a farmer's decision-making process. The EU represents rationality and the prospect value represents the intuitive component. Meanwhile, the authors investigate the possibility of using key weather parameters to construct a berry quality index – one that could be applied to other agricultural areas for studying the relationship between weather conditions and product quality.

Using assets as resilience capacities for stabilizing food demand of vulnerable households

In the absence of governmental welfare support, assets have an important role in determining the capacity of vulnerable households of being resilient against economic shocks affecting their food needs. By focusing on the context of Sub-Saharan Africa, this paper analyses household responses in food demand to shocks affecting their food purchases. We analyze the effects of non-agricultural assets, livestock ownership, and crop stocks on stabilizing poor household's food demand by integrating them as proxies for resilience capacities into a Quadratic Almost Ideal Demand System. We find that those non-agricultural assets mostly reduce the sensitivity of demand of poor households for protein foods, pulses, and greens. Hence, poor households' demand for core nutrition items can be made more robust to shocks if their endowment of non-agricultural assets that raises their resilience capacities is improved. This can be achieved by establishing insurance packages as in the case of weather index-based insurance for smallholder farmers, or upscaling interventions that increase and stabilize households' assets.

Agricultural Insurance in the Philippines: Innovative Product Development and Scale-Up Amid Climate Risks and Other Hazards

The Philippines, an archipelago situated in the Pacific Ring of Fire and the typhoon belt, is highly vulnerable to natural disasters. The continued global warming experienced in the country in the past years shows a trend of climate changes that have caused casualties and losses in agriculture and properties. One of the solutions to address the negative effects of climate change is agricultural insurance. The Philippine Crop Insurance Corporation (PCIC) is a government institution that has served as the country’s sole provider of traditional crop insurance since 1981. However, because of PCIC’s limited resources, the private sector’s participation in the agricultural insurance business is necessary to increase the number of farmers, fisherfolk, and other stakeholders protected with insurance. The issuance of rules and regulations for private agricultural insurance operations and the formation of a Public-Private Partnership composed of the PCIC and private insurance companies are vital strategies to scale-up agricultural insurance business in the country. Further, to improve the agricultural insurance program, innovative/index-based agricultural insurance products, such as Weather Index-Based Insurance (WIBI) and Area-Based Yield Index Insurance (ARBY), have been developed and piloted with funding from donor agencies. New products such as the Yield Insurance Products for High-Value Crops (a hybrid of traditional, ARBY, and WIBI schemes), initially for coconut, coffee, and cacao crops could enable the PCIC and private insurers to provide insurance services at lesser loss adjustment cost and with a faster settlement of claims. Challenges to a successful and sustainable implementation of the new products need to be met, namely the (1) development of the required data infrastructure; (2) acquisition of advanced weather equipment and technologies for crop modeling and experimentation; and (3) collaboration with government research institutions and state colleges and universities to undertake science-based modeling and experimentation for the development of various weather indices/parametric for crops, fisheries/aquaculture, and livestock. Further measures to strengthen the existing agricultural insurance program include (1) integrating plans for agricultural insurance in the development and implementation plans of all concerned government institutions involved in agriculture, fisheries, and forestry sectors and (2) organizing small farmers and fisherfolk to undertake collective farming and business activities as they cannot cope with rapid changes in climate on their own that affect their livelihood.

WEATHER BASED INDEX INSURANCE AND ITS ROLE IN AGRICULTURAL PRODUCTION

Purpose: Insurance not only is a shock absorber for farmers and other actors in the agricultural value chain, but it also enables access to credit and hence is an integral part of financial inclusion, and it enables/protects investments in better inputs and technologies which increase productivity. The different forms of insurance also reduce the government's budget exposure to agricultural risks. Crop insurance could incentivize farmers to increase their input use but indemnity-based crop insurance programs are plagued by market failures. The purpose of this research work was to examine weather-based index insurance and its role in agricultural production. This study highlights the key opportunities for weather-based index products and bring further clarity to how the use of weather-based index insurance can help to transform agriculture production.
 Methodology: Relevant book references and journal articles for the study were identified using Google Scholar. The inclusion criteria entailed papers that were not over five years old.
 Findings: This study found that the uptake of weather-based index insurance is positively and significantly associated with the use of chemical fertilizer and improved seeds, and also with crop yield. The study concludes that upscaling of weather-based index insurance programs may help to spur agricultural development in agricultural production.
 Recommendations: The study recommends that weather-based index insurance be linked to an existing development program or other market opportunities to provide added value to the client. As a stand-alone product, weather-based index insurance may be seen as an unnecessary cost and have little demand from farmers who face a variety of risks in addition to weather risks. The study also recommends partnership between weather-based index insurance programs and complementary agricultural development or risk management programs. NGOs in particular could play an important and independent role in the extension of information to farmers, possibly in conjunction with official extension services.

Enhanced Weather-Based Index Insurance Design for Hedging Crop Yield Risk.

This study proposes an optimization-based weather-yield model to reduce the basis risk of weather-based index insurance. This weather-yield model helps us capture the growing season's monthly variation as it involves monthly explanatory weather indices. In addition, it can capture additional extreme weather effects by including extreme cooling or heating weather indices. This study presents an innovative machine learning framework incorporating optimization approaches to ensure the parsimony of weather index models and the accuracy of crop yield predictions, which can be integrated into the conventional policy design and pricing process. The advantages of this modeling approach and the effectiveness of weather index-based insurance based on this approach in reducing basis risk and revenue risk are demonstrated by applying county-level yield data for mid-season rice in the Anhui province, China.

Crop Insurance, a Frugal Innovation in Tanzania, Helps Small Maize Farmers and Contributes to an Emerging Land Market

A land market is emerging in Tanzania, triggered by initiatives to reform land legislation and modernize agriculture through frugal innovations, combining hybrid seeds and weather-based index insurance with the use of mobile telephones. The analysis shows that agricultural modernization can be a driver for an emerging land market. Demand for land increases and because of the liberalization of land rights, land can be bought or leased, something the more successful farmers do. To assess the effects of crop insurance for maize farmers, a frugal innovation, a survey has been carried out in three regions. Two hundred farmers were interviewed using cluster sampling with the villages as sampling units and then selecting households per village. The rural transformation process, driven by innovation, started with the development of an ecosystem and land registration while allowing more private (commercial and non-commercial) initiatives. The triggers are frugal innovations. Crop insurance, combining existing hybrid seeds, with satellite images and mobile telephones, brings about a transformation process and pumps money into the land system. People noticing that hybrid maize works, if you have hybrid seeds, the complementary inputs, and an insurance policy, jump on the band wagon, which leads to more demand for land and contributes to an emerging land market.

Do Satellite Data Correlate with In Situ Rainfall and Smallholder Crop Yields? Implications for Crop Insurance

Adverse weather is one of the most prevalent sources of risk in agriculture. Its impacts are aggravated by the lack of effective risk management mechanisms. That is why resource-poor farmers tend to respond to weather risks by adopting low-capital investment, low-return, and low-risk agricultural practices. This challenge needs to be addressed with innovative risk management strategies. One of the tools that is gaining traction, especially in the developing countries, is weather-index-based insurance (WII). However, WII uptake is still low because of several constraints, one of which is basis risk. This study attempts to address this problem by evaluating the suitability of TAMSAT, CHIRPS, MODIS, and Sentinel-2 data for WII. We evaluated the first three datasets against in situ rainfall measurements at different spatial and temporal scales over the maize-growing season in a smallholder farming area in South Africa. CHIRPS had higher correlations with in situ measured rainfall data than TAMSAT and MODIS NDVI. CHIRPS performed equally well at 10 km and 25 km spatial scales, and better at monthly than daily and 16-day time steps (maximum R = 0.78, mean R = 0.72). Due to the lack of reliable historical yield data, we conducted yield surveys over three consecutive seasons using an objective crop cut method. We then assessed how well rainfall and NDVI related with maize yield. There was a poor relationship between these variables and maize yield (R2 ≤ 0.14). The study concludes by pointing out that crop yield does not always have a linear relationship with weather and vegetation indices, and that water is not always the main yield-limiting factor in smallholder farming systems. To minimize basis risk, the process of designing WII must include identification of main yield-limiting factors for specific localities. Alternatively, insurers could use crop water requirement methods to design WII.

Exploring fishers’ perceptions of index insurance and coral reef health in the context of climate-driven changes in extreme events

Abstract Climate-change-driven storminess and extreme events are increasingly challenging fishers in tropical island countries. Weather-based index insurance is an emerging tool that can assist fishing communities in their recovery and adaptation to such events. In these regions, coral reefs support valuable fisheries and also provide coastal protection during extreme events. Surveying 80 fishers in Grenada, this exploratory study examined fishers’ perceptions of index insurance in the context of their experiences of extreme events. We also explore perceptions of reef health and its’ connections to fishing outcomes and coastal protection, given the indirect role this plays in supporting fishers’ resilience through associated fisheries and storm protection. Most fishers viewed extreme events as a severe risk to their livelihoods, affecting their ability to make future plans. Fishers comprehended the links between improved reef health and positive impacts on fishing (higher catches and incomes). Several challenges regarding index insurance were raised, which centred on themes of flexibility, affordability, inclusivity, and accessibility. These could pose barriers to fishers and undermine demand for or participation in such schemes. As such, research, design, and implementation of future index insurance schemes should consider issues raised by fishers to ensure that provision is equitable and improve uptake.

Does the Mutton Sheep Weather Index Insurance Promote the Mutton Sheep Industry?A Study based on the Endogenous Switching Regression Model

In 2018, as the first livestock weather index-based insurance product for grassland animal husbandry, the mutton sheep weather index insurance was officially listed as a subsidy agricultural insurance by the Government of the Inner Mongolia Autonomous Region, which was later in 2019 implemented throughout the XilinGol League of the autonomous region. Employing the endogenous switching regression model, this study investigates the factors influencing herdsmen's purchasing decisions, as well as the impact of mutton sheep weather index insurance on the mutton sheep industry scale, which are accomplished based on 308 survey data from herdsmen in the XilinGol League. The empirical results reveal that the age, age squared, pasture area and neighbors' purchasing intention constitute the significant influencing factors of the herdsmen's purchasing decisions, while the pasture area and net pastoral income affect the scale of mutton sheep farming prominently. Furthermore, according to the ATT results, the mutton sheep weather index insurance produces an insignificant impact on the sheep farming scale of herdsmen. The conclusions of this study suggest that the mutton sheep weather index insurance is not contrary to the cattle-increasing, sheep-reducing policy in the Inner Mongolia Autonomous Region, which also provide a solid theoretical basis for the promotion of the insurance throughout the autonomous region.

Is diversification effective in reducing the systemic risk implied by a market for weather index-based insurance in Spain?

This study assesses how effective spatial diversification is in reducing the systemic risk implied by a market for weather index-based insurance in Spain and compares rainfall- and temperature-based policies in terms of systemic risk. Based on historical weather data, daily models which rely on the multivariate normal distribution are applied to derive greater samples. The results show that the Buffer Load, as measured by the Expected Shortfall, decreases up to 67% as the level of aggregation increases. This suggests that the trading area should not be focused on a specific county, but on Spain as a whole. Considering the highest aggregation degree, it is also shown that the diversification effect is significant, of up to 0.35. Finally, it is noted that rainfall insurance is a less-risky alternative as compared to temperature-geared contracts, as it implies lower losses and prices and stronger risk pooling effectiveness. Therefore, we recommend the inclusion of this type of policies in the insurance companies’ portfolio. Finally, although this study focuses on a specific country, the proposed methodology can be easily extrapolated to other geographical areas.

Renewal of Crop Index-Based Insurance Uptake: Evidence from Senegal

In this work, we estimate the determinants of the renewal of weather index-based insurance contracts by Senegalese farmers who practiced rain-fed agriculture in the Senegalese groundnut during the years 2014, 2015 and 2016. Based on data on 3698 producers to whom weather index-based insurance bundled with an agricultural loan was proposed, we conducted a survival analysis using an Andersen-Gill cox regression to identify the drivers of the contract renewal. Our results show that difference in gender and amount of premiums paid do not explain contracts’ renewal. However, cooperatives to whom farmers are affiliated, possibility to delay premium payment until the reimbursement of loans and whether payouts were triggered or not, were the core determinants of renewal after the first year of purchase.

Improved index insurance design and yield estimation using a dynamic factor forecasting approach

Accurate crop yield forecasting is central to effective risk management for many stakeholders, including farmers, insurers, and governments, in various practices, such as crop management, sales and marketing, insurance policy design, premium rate setting, and reserving. This paper first investigates an innovative approach of yield forecasting using a dynamic factor model. Based on the proposed approach, we then design an enhanced weather index-based insurance (IBI) policy. The dynamic factor approach is motivated by its ability to effectively summarize the information in a large set of explanatory variables with common factors of a much lower dimension. This makes it possible to use an extensive set of variables in crop yield prediction without worrying about identification issues. Using both county-level and state-level crop production data from the state of Illinois, U.S., the empirical results show that the dynamic factor approach produces more accurate in- and out-of-sample forecasting results compared to the classical statistical models. The empirical results also support that the proposed IBI policy based on the dynamic forecasting model has small basis risk. This, in turn, greatly improves the IBI’s hedge effectiveness against agricultural production as well as increases its practicality as an insurance policy for agriculture.

Usage of rainfall derivatives to hedge rainfall risk: A feasibility study of Gwalior Chambal region

Objectives: To check the awareness level of farmers towards crop insurance schemes available so far and their satisfaction level with those schemes. To check the acceptability of farmers towards rainfall derivatives Methods: To achieve the objective of study, we have conducted a survey among the farmers of Gwalior Chambal region in India. The sample size of survey was 470 farmers; we have selected 5 villages per tehsil and 2 farmers per village. We have used cross tabulation to analyse the collected data. Findings: This study shows that only few farmers were aware about the previously launched crop insurance schemes by government and out the farmers who were aware and used the previous schemes were not satisfied with them. This study also shows the positive response by farmers towards rainfall derivative products. The study shows that most of the farmers believed that rainfall derivative can be a very effective tool for hedging the rainfall risk. Novelty: This study is very much helpful to understand the acceptability of rainfall derivatives among the farmers of Gwalior-Chambal region. This study can be used as a recommendation to launch the rainfall derivatives in India. Keywords: Rainfall risk; rainfall derivatives; crop insurance; hedging; weather index-based insurance; crop damage