IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v12y2020i6p2491-d335693.html
   My bibliography  Save this article

Grain Area Yield Index Insurance Ratemaking Based on Time–Space Risk Adjustment in China

Author

Listed:
  • Xiaotao Li

    (College of Economics and Management, China Agricultural University, Beijing 100083, China)

  • Jinzheng Ren

    (College of Economics and Management, China Agricultural University, Beijing 100083, China)

  • Beibei Niu

    (College of Economics and Management, China Agricultural University, Beijing 100083, China)

  • Haiping Wu

    (School of Public Finance and Taxation, Hebei University of Economics and Business, Shijiazhuang 050061, China)

Abstract

The foundation and sustainable development of agricultural insurance involve accurately determining a premium and establishing a dynamic premium adjustment mechanism that matches the agricultural production risk. Based on the theoretical analysis of the impact of time–space risk adjustment on agricultural insurance ratemaking, we constructed a pure premium ratemaking model based on time-varying risk adjustment and a safety premium ratemaking model based on spatially dependent risk adjustment. Choosing the county grain area-yield index insurance (GAYI) in China as the research object, we obtained the following results: (1) the risk of grain yield per unit area (YPUA) and pure premium rate in most counties decreased significantly with time-varying adjustment, and we observed differences between regions; (2) grain’s spatially dependent risk has a strong negative adjustment effect on the loading factor, but the expansion of insurance underwriting can still rapidly reduce the safety premium rate, mainly due to the reduction in the spatially dependent risk; and (3) based on time-varying risk adjustment and underwriting expansion, the reduction effect of premium rates is obvious, which supports the sustainable commercial operation of agricultural insurance. These research results help to clarify the relationships of premium rates and provide implications on the sustainability of catastrophe management.

Suggested Citation

  • Xiaotao Li & Jinzheng Ren & Beibei Niu & Haiping Wu, 2020. "Grain Area Yield Index Insurance Ratemaking Based on Time–Space Risk Adjustment in China," Sustainability, MDPI, vol. 12(6), pages 1-15, March.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:6:p:2491-:d:335693
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/12/6/2491/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/12/6/2491/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ostap Okhrin & Martin Odening & Wei Xu, 2013. "Systemic Weather Risk and Crop Insurance: The Case of China," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(2), pages 351-372, June.
    2. Chengguo Weng & Lysa Porth & Ken Seng Tan & Ryan Samaratunga, 2017. "Modelling the Sustainability of the Canadian Crop Insurance Program: A Reserve Fund Process Under a Public–Private Partnership Model," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 42(2), pages 226-246, April.
    3. Jesse B. Tack & David Ubilava, 2015. "Climate and agricultural risk: measuring the effect of ENSO on U.S. crop insurance," Agricultural Economics, International Association of Agricultural Economists, vol. 46(2), pages 245-257, March.
    4. Chen, Shuai & Chen, Xiaoguang & Xu, Jintao, 2016. "Impacts of climate change on agriculture: Evidence from China," Journal of Environmental Economics and Management, Elsevier, vol. 76(C), pages 105-124.
    5. Alan P Ker & Tor N Tolhurst, 2019. "On the Treatment of Heteroscedasticity in Crop Yield Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 101(4), pages 1247-1261.
    6. Zhiwei Shen & Martin Odening, 2013. "Coping with systemic risk in index-based crop insurance," Agricultural Economics, International Association of Agricultural Economists, vol. 44(1), pages 1-13, January.
    7. Barry K. Goodwin, 2001. "Problems with Market Insurance in Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 643-649.
    8. Jakob Thomä & Stan Dupré & Michael Hayne, 2018. "A Taxonomy of Climate Accounting Principles for Financial Portfolios," Sustainability, MDPI, vol. 10(2), pages 1-18, January.
    9. Ardian Harri & Keith H. Coble & Alan P. Ker & Barry J. Goodwin, 2011. "Relaxing Heteroscedasticity Assumptions in Area-Yield Crop Insurance Rating," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(3), pages 703-713.
    10. Barry K. Goodwin & Alan P. Ker, 1998. "Nonparametric Estimation of Crop Yield Distributions: Implications for Rating Group-Risk Crop Insurance Contracts," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 139-153.
    11. Jikun Huang & Yangjie Wang & Jinxia Wang, 2015. "Farmers' Adaptation to Extreme Weather Events through Farm Management and Its Impacts on the Mean and Risk of Rice Yield in China," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(2), pages 602-617.
    12. Mario J. Miranda & Joseph W. Glauber, 1997. "Systemic Risk, Reinsurance, and the Failure of Crop Insurance Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 206-215.
    13. Jerry R. Skees & J. Roy Black & Barry J. Barnett, 1997. "Designing and Rating an Area Yield Crop Insurance Contract," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 430-438.
    14. Rob Kaas & Marc Goovaerts & Jan Dhaene & Michel Denuit, 2008. "Modern Actuarial Risk Theory," Springer Books, Springer, edition 2, number 978-3-540-70998-5, December.
    15. Keith H. Coble & Thomas O. Knight & Rulon D. Pope & Jeffery R. Williams, 1996. "Modeling Farm-Level Crop Insurance Demand with Panel Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 439-447.
    16. Sein Mar & Hisako Nomura & Yoshifumi Takahashi & Kazuo Ogata & Mitsuyasu Yabe, 2018. "Impact of Erratic Rainfall from Climate Change on Pulse Production Efficiency in Lower Myanmar," Sustainability, MDPI, vol. 10(2), pages 1-16, February.
    17. H. Holly Wang & Hao Zhang, 2003. "On the Possibility of a Private Crop Insurance Market: A Spatial Statistics Approach," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 70(1), pages 111-124, March.
    18. Zhu, Ying & Goodwin, Barry K. & Ghosh, Sujit K., 2011. "Modeling Yield Risk Under Technological Change: Dynamic Yield Distributions and the U.S. Crop Insurance Program," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 36(1), pages 1-19, April.
    19. Eunchun Park & B Wade Brorsen & Ardian Harri, 2019. "Using Bayesian Kriging for Spatial Smoothing in Crop Insurance Rating," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 101(1), pages 330-351.
    20. Youbaraj Paudel, 2012. "A Comparative Study of Public—Private Catastrophe Insurance Systems: Lessons from Current Practices," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 37(2), pages 257-285, April.
    21. Youbaraj Paudel & W J Wouter Botzen & Jeroen C J H Aerts, 2012. "A Comparative Study of Public–Private Catastrophe Insurance Systems: Lessons from Current Practices," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 37(3), pages 603-603, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Weijia Wang & Wen Wang & Kun Wang & Yanyun Zhao & Ran Yu, 2023. "Remote Sensing Application in Pure Premium Rate-Making of Winter Wheat Crop Insurance," Sustainability, MDPI, vol. 15(9), pages 1-15, April.
    2. Martínez-Salgueiro, Andrea & Tarrazón-Rodón, María-Antonia, 2020. "Is diversification effective in reducing the systemic risk implied by a market for weather index-based insurance in Spain?," MPRA Paper 119924, University Library of Munich, Germany, revised 19 May 2021.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yong Liu & Alan P. Ker, 2021. "Simultaneous borrowing of information across space and time for pricing insurance contracts: An application to rating crop insurance policies," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 88(1), pages 231-257, March.
    2. Yong Liu & A. Ford Ramsey, 2023. "Incorporating historical weather information in crop insurance rating," American Journal of Agricultural Economics, John Wiley & Sons, vol. 105(2), pages 546-575, March.
    3. Park, Eunchun & Brorsen, B. Wade & Harri, Ardian, 2016. "Using Bayesian Spatial Smoothing and Extreme Value Theory to Develop Area-Yield Crop Insurance Rating," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235754, Agricultural and Applied Economics Association.
    4. Zhiwei Shen & Martin Odening, 2013. "Coping with systemic risk in index-based crop insurance," Agricultural Economics, International Association of Agricultural Economists, vol. 44(1), pages 1-13, January.
    5. A. Ford Ramsey & Barry K. Goodwin, 2019. "Value-at-Risk and Models of Dependence in the U.S. Federal Crop Insurance Program," JRFM, MDPI, vol. 12(2), pages 1-21, April.
    6. Ghahremanzadeh, Mohammad & Mohammadrezaei, Rassul & Dashti, Ghader & Ainollahi, Moharram, 2018. "Designing a whole-farm revenue insurance for agricultural crops in Zanjan province of Iran," Economia Agraria y Recursos Naturales, Spanish Association of Agricultural Economists, vol. 17(02), January.
    7. Martínez-Salgueiro, Andrea & Tarrazón-Rodón, María-Antonia, 2020. "Is diversification effective in reducing the systemic risk implied by a market for weather index-based insurance in Spain?," MPRA Paper 119924, University Library of Munich, Germany, revised 19 May 2021.
    8. A Ford Ramsey, 2020. "Probability Distributions of Crop Yields: A Bayesian Spatial Quantile Regression Approach," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(1), pages 220-239, January.
    9. Niyibizi, Bart & Brorsen, Wade & Park, Eunchun, 2018. "Using Bayesian Kriging for Spatial Smoothing of Trends in the Means and Variances of Crop Yield Densities," 2018 Annual Meeting, August 5-7, Washington, D.C. 274403, Agricultural and Applied Economics Association.
    10. Sheng, Di & Lambert, Dayton M. & Hellwinckel, Chad, 2016. "A Copula-based Approach to Simulate Climate Impacts on Yield: Some Preliminary Findings," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 230006, Southern Agricultural Economics Association.
    11. Shen, Zhiwei, 2016. "Adaptive local parametric estimation of crop yields: implication for crop insurance ratemaking," 156th Seminar, October 4, 2016, Wageningen, The Netherlands 249984, European Association of Agricultural Economists.
    12. Ming Wang & Tao Ye & Peijun Shi, 2016. "Factors Affecting Farmers’ Crop Insurance Participation in China," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 64(3), pages 479-492, September.
    13. Feng, Xiaoguang & Hayes, Dermot J., 2014. "Is Government Involvement Really Necessary: Implications for Systemic Risk and Crop Reinsurance Contracts," ISU General Staff Papers 201410010700001002, Iowa State University, Department of Economics.
    14. Jesse B. Tack & David Ubilava, 2015. "Climate and agricultural risk: measuring the effect of ENSO on U.S. crop insurance," Agricultural Economics, International Association of Agricultural Economists, vol. 46(2), pages 245-257, March.
    15. Jesse Tack & David Ubilava, 2013. "The effect of El Niño Southern Oscillation on U.S. corn production and downside risk," Climatic Change, Springer, vol. 121(4), pages 689-700, December.
    16. Zhiwei Shen & Martin Odening & Ostap Okhrin, 2016. "Can expert knowledge compensate for data scarcity in crop insurance pricing?," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 43(2), pages 237-269.
    17. Coble, Keith H. & Barnett, Barry J., 1999. "The Role Of Research In Producer Risk Management," Professional Papers 15803, Mississippi State University, Department of Agricultural Economics.
    18. Liang, Weifang & Liu, Yong, 2023. "Rating Crop Insurance Contracts with Model Stacking of Gaussian Processes," 2023 Annual Meeting, July 23-25, Washington D.C. 335759, Agricultural and Applied Economics Association.
    19. Wei Xu & Guenther Filler & Martin Odening & Ostap Okhrin, 2010. "On the systemic nature of weather risk," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 70(2), pages 267-284, August.
    20. Wu, Yang-Che, 2020. "Equilibrium in natural catastrophe insurance market under disaster-resistant technologies, financial innovations and government interventions," Insurance: Mathematics and Economics, Elsevier, vol. 95(C), pages 116-128.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:12:y:2020:i:6:p:2491-:d:335693. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.