Vol. 7, Issue 3 (2019)
Weather index insurance: An alternative approach towards protecting farmer’s income in the face of weather aberration
Author(s): S Mahato and A Saha
Abstract: Weather Index insurance is a simplified form of insurance in which indemnity payments are based on values obtained from an index that serves as a proxy for losses rather than upon the assessed losses of each individual policyholder. The sum insured is normally based on production cost on an agreed value basis, and payouts are made based on a pre-established scale set out in the insurÂance policy. In the initial years, the structure of the index was simple like seasonal total rainfall index and its deviation from long term mean. However, over the years, the indices have been developed to be more complex weather derivatives including critical dry days, weighted rainfall etc. variable over phenophases of the crop growing period. Critical temperature and humidity combination congenial for disease and pest development have also been carefully incorporated in designing weather index to meet the critical demand of the farmers. Weather index based crop insurance has many advantages, like; a) reduced moral hazard b) process of field loss assessment is eliminated c) reduced information requirements and bureaucracy d) facilitation of reinsurance e) facilitating access to financial services and f) transparency etc. However, it is not without its limitations like; a) variable basis risk b) data availability c) integrity of weather stations d) limited product options for different weather risks e) Need for farmer/insurer/ regulator capacity building and education for its success and f) it does not have universal application.
Pages: 551-560 | 462 Views 85 Downloads
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How to cite this article:
S Mahato, A Saha. Weather index insurance: An alternative approach towards protecting farmer’s income in the face of weather aberration. Int J Chem Stud 2019;7(3):551-560.