Agricultural insurances based on meteorological indices: realizations, methods and research challenges

TLDR

In many low‑income countries, rainfed agriculture depends heavily on climate, yet farmers lack access to traditional insurance because of information asymmetry and high transaction costs, so meteorological‑index insurance offers a promising alternative, though large‑scale implementation remains slow. This article surveys the most advanced meteorological‑index crop‑insurance projects in developing countries, outlines key research gaps—such as implementation, benefit assessment, climate‑change adaptation, spatial weather variability, and integration with other hedging tools—and calls for further study. The authors describe the methodology for designing such projects, including selecting the meteorological index, setting the indemnity schedule, and determining the insurance premium. © 2011 Royal Meteorological Society.

Abstract

Abstract In many low‐income countries, agriculture is mostly rainfed and crop yield depends highly on climatic factors. Furthermore, farmers have little access to traditional crop insurance, which suffers from high information asymmetry and transaction costs. Insurances based on meteorological indices could fill this gap since they do not face such drawbacks. However, a full‐scale implementation has been slow so far. In this article, the most advanced projects that have taken place in developing countries using these types of crop insurances are described. Following this, the methodology that has been used to design such projects in order to choose the meteorological index, the indemnity schedule and the insurance premium, is described. Finally the main research issues are discussed. In particular, more research is needed on implementation, assessment of benefits, how to deal with climate change, spatial variability of weather and interactions with other hedging methods. Copyright © 2011 Royal Meteorological Society