Modeling Of Dynamic Weather Indexes By Coupling Spatial Phenological And Precipitation Data - A Practical Application In The Context Of Weather Index-based Insurances

A key challenge for the design of weather index insurances (WII) is the presence of basis risk, i.e. the actual loss of the insured farm is not fully covered by the insurance payment. Basis risk can occur dependent on the distance between the point of measurement of a specific weather event and the farm’s location (spatial basis risk). The present study aimed to derive spatial data sets and use them for the design of test site- and phenological phasespecific precipitation indexes. We studied for 20 German crop farms the hedging efficiency of WII, i.e. how the variability of farm specific total gross margins would have changed if farmers had purchased the designed WII. The hedging efficiency is different from farm to farm and not always a risk reduction (positive HE) results. Although these might be not the best results, a new methodology to minimize spatial basis risk could be introduced by designing highly dynamic indexes, which are flexible and precise in terms of time and space. The contribution of the present study to the WII research is the analysis of the HE of WII based on these indexes.