Designing and pricing weather index insurance with applications to winter wheat production in Tartu County

Abstract

In our study, we attempt to get the reader familiar with the concept of the weather index insurance (WII), also called weather index-based insurance, which is seen as an alternative to the traditional agricultural insurance products by many researchers (see, e.g., Daron and Stainforth (2014), Carter et al. (2015), Sibiko et al., (2018)). Furthermore, we provide information regarding the advantages and practical challenges of the WII concept and give and overview of the process of designing this type of an insurance product. The aim of our study is to design several policies against low temperature harmful to the winter wheat. Our numerical example is based on Tartu-Tõravere weather station. Pricing is based on hypothetical claim sizes data.