ContextCrop insurance has become an indispensable risk management tool in the agricultural sector because globally crops are being exposed to multiple hazards. The lack of reliable crop yield data has impacted the sustenance of area-yield crop insurance schemes. Index-based insurance, which links pay-outs to crop performance proxies rather than measured losses, is being explored to improve the effectiveness of crop insurance contracts. ObjectiveThis paper presents an innovative crop insurance scheme that has replaced the existing ‘area-yield’ approach using bias-prone crop yield estimates with the ‘area-crop performance approach’ using objectively measured satellite indices. MethodSatellite-based crop mapping, satellite and weather-based crop health indicators, field data collection and analysis, composite index generation, and insurance loss assessment are major tasks in the project. Data of Sentinel-1 and 2 satellites, weather datasets and mobile app-based field data from transplantation to harvesting of the crop constituted a huge repository of the database in this project. Metrics derived from established satellite indices, such as NDVI, LSWI and Backscatter, along with weather indices, were synthesized into a composite index of crop performance called Crop Health Factor (CHF). The input data matrix of the CHF model included eight input indicators. After data normalization, weights for these indicators were generated using the entropy technique, a proven method of information measurement that produces balanced relationships and unbiased weights. The CHF was first generated with data from the past years (2016–2019), and the resulting weights were then applied to the normalized data of the current year (2020). ResultsThe current crop insurance scheme, using CHF data instead of yield data, was implemented in the state of West Bengal, India, covering about 500,000 ha of potato across and one thousand insurance units in the 2020 crop season. The CHF and yield data from past years showed similar patterns in the majority of cases. The indemnity level was set at 70 % of the normal CHF, which was the average CHF of past years. Loss assessment and compensation payouts for the current year were determined by the extent of CHF reduction beyond the indemnity level. SignificanceThis new index-insurance scheme has many advantages over the conventional yield-based scheme in terms of transparency, objectivity and ease of implementation. There is scope for improving the composite index with additional features. Such technology-driven index-insurance schemes for field crops are expected to bring a paradigm shift in the crop insurance sector, giving rise to new business models and benefitting all the stakeholders.