Precipitation or water capacity indices? An analysis of the benefits of alternative underlyings for index insurance

Kellner, Ulla; Mußhoff, Oliver

doi:10.1016/j.agsy.2011.06.007

Cited by 30 publications

(21 citation statements)

References 25 publications

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“…The hedging effectiveness of index insurance is analyzed by comparing ID gross margin with and without the insurance contract, measuring the standard deviation (Kellner & Musshoff, 2011). Additionally, we compare the mean root square loss (MRSL), and minimum gross margin with and without the insurance contract.…”

Section: Description Of the Case Studymentioning

confidence: 99%

Hydrological drought index insurance for irrigation districts in Spain

Maestro

Bielza

Garrido

2016

Span. j. agric. res.

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reducing the availability of surface and groundwater sources, and giving rise to water shortages both for consumption uses and for environmental flows. Water scarcity in irrigated farming systems results in potentially greater economic losses than in rainfed systems, due to the higher investments being made on the farm.To manage water scarcity, deficit irrigation has been studied and implemented, particularly to ligneous crops, showing satisfactory results (Ruiz-Sanchez et al., 2010). Water markets are commonly used in Aus- RESEARCH ARTICLE OPEN ACCESS AbstractHydrological droughts are a major risk for irrigated agriculture in many regions of the world. The aim of this article is to propose an insurance tool to help irrigators manage the risk of water scarcity in the framework of the Spanish Crop Insurance System (SCIS). Only the United States Insurance System provides this type of coverage, but has very restrictive conditions. To determine the type of insurance scheme that better fits with the SCIS and to the Spanish irrigated agriculture, an expert panel was held with the participation of all stakeholders involved in crop insurance. Following the expert panel conclusions, an hydrological drought index insurance (HDII) addressed to irrigation districts (ID) is proposed. It would compensate water deficits suffered in the whole ID. We detail the conditions that the ID should fulfill to be eligible for HDII. HDII is applied to the Bardenas Irrigation District V (ID-V) in Spain, and the hedging effectiveness of the instrument is analyzed comparing ID-V's gross margins with and without the insurance contract. Results suggest that the proposed insurance scheme could provide an effective means of reducing farmers' vulnerability to water shortages and there is no major impediment for it to be included as a new line in the SCIS. This type of insurance can be generalized to any ID fulfilling the conditions mentioned in this paper.

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Section: Description Of the Case Studymentioning

confidence: 99%

Hydrological drought index insurance for irrigation districts in Spain

Maestro

Bielza

Garrido

2016

Span. j. agric. res.

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“…The hedging effectiveness of index insurance is analyzed by comparing ID gross margin with and without the insurance contract, measuring the standard deviation (Kellner and Musshoff 2011). Additionally, we compare the mean root square loss (MRSL), and minimum gross margin with and without the insurance contract.…”

Section: Index Insurance Design Hedging Effectiveness and Contract mentioning

confidence: 99%

“…In order to reduce basis risk, several authors propose the use of mixed indices (Kapphan et al 2012;Kellner and Musshoff 2011) or designing multiscale contracts (Elabed et al 2013). …”

Section: Zeuli and Skees (2005) Propose A Financial Product Called Cumentioning

confidence: 99%

“…Both options can lower the basis risk, but in turn the insurance becomes less comprehensible for the insured farmer (Kellner and Musshoff 2011), so simpler indices are more desirable. Another problem associated to hydrological drought insurance is that water shortages can be predicted in advance in regions in which reservoirs do not refill each year and can hold several years of water supply (i. e., inertial systems), giving rise to intertemporal adverse selection.…”

Section: Zeuli and Skees (2005) Propose A Financial Product Called Cumentioning

confidence: 99%

“…The effectiveness of the index insurance can be analyzed by comparing the standard deviation of net loss outcomes with and without the insurance contract (Collier, Skees and Barnett 2009;Kellner and Musshoff 2011). In addition to the actuarially fair premium rate, premium loads of 10%, 20%, and 30% are considered.…”

Section: Index Insurance Performance For Westlands Water District Lanmentioning

confidence: 99%

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Hydrological Drought Index Insurance for Irrigated Agriculture

Villarroya¹

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EL PRESIDENTE LOS VOCALES EL SECRETARIO i AgradecimientosLlegó el momento de redactar los agradecimientos, y recordar a todas las personas que me han acompañado en este recorrido y que me han ayudado a finalizar el doctorado. El pararse a pensar sobre todo lo que tenemos que agradecer a las personas que nos rodean, es un ejercicio que deberíamos hacer más a menudo, sin tener por ello que redactar una tesis cada vez.Para empezar quiero dar las gracias a mis dos tutores, María Bielza y Alberto Garrido. María me abrió las puertas del CEIGRAM y me dio la oportunidad de colaborar con ella en el proyecto -Un seguro de sequía hidrológica para la agricultura de regadío como instrumento de adaptación al cambio climático‖, gracias a lo cual recibí una beca FPI del Ministerio de Economía yCompetitividad para la realización del doctorado, que me ha dado tranquilidad y estabilidad económica durante los últimos 4 años. Gracias María, por todas las oportunidades que me has dado, tu cercanía, tu dedicación y tus consejos. Alberto Garrido ha seguido muy de cerca toda mi investigación, pero debo de agradecerle sobre todo su papel en la última parte de la tesis, fundamental para culminar este trabajo. Alberto, muchas gracias por tu apoyo, eficacia y por todos los ánimos que me has dado.En el proyecto he tenido la suerte de colaborar además con Jorge Ruiz, Ana Iglesias, FelipeMedina, Gabriela Jiménez y Alberto Algarra. También quiero dar las gracias a todos los que participaron en el seminario del proyecto.La beca FPI me ha dado además la posibilidad de acceder a ayudas para la realización de estancias en otras universidades. La primera fue en la Universidad de Catania (Italia), donde debo de agradecer la ayuda de Antonio Cancelliere, Vincenzo Nicolosi, David Peres y Brunella Bonaccorso, así como la compañía de mis incansables compañeros de despacho, Claudio e Ilaria. La segunda estancia fue en la Universidad de Mississippi (Estados Unidos). Allí tuve el honor de trabajar con dos grandes expertos en seguros agrarios, Barry Barnett y Keith Coble, con los que hemos escrito uno de los artículos que forman parte de esta tesis, muchísimas gracias por vuestra contribución. También asistí a la clase de Ardian Harri, con quien disfruté de la econometría. Debo de agradecer especialmente la ayuda de Barry en todos los aspectos y la compañía y complicidad de Dee Barnett, que me hizo sentir como en casa durante la estancia.Por cierto, nunca he madrugado tanto los sábados, como para ir a correr con Becky y Cade Smith y los Broadtown runners.La realización de esta tesis no hubiera sido posible sin el apoyo del CEIGRAM y del ResumenLos riesgos de escasez de agua en sistemas de regadío son importantes en los países semi-áridos y es probable que aumenten debido al cambio climático. De ahí deriva el interés en ofrecer a los agricultores la posibilidad de proteger la estabilidad de los ingresos de las explotaciones de regadío frente a este riesgo. Debido a las dificultades que un seguro de este tipo presenta, solamente un país (Estados Unidos) ofrec...

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Hedging the financial risk from water scarcity for Great Lakes shipping

Meyer

Characklis

Brown

et al. 2016

Water Resources Research

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Low water levels in the Great Lakes have recently had significant financial impacts on the region's commercial shipping, which transports hundreds of millions of dollars' worth of bulk goods each year. Cargo capacity is a function of a ship's draft, the distance between water level and the ship's bottom, and lower water levels force ships to reduce cargo loads to prevent running aground in shallow harbors and locks. Financial risk transfer instruments, such as index-based insurance contracts, may provide an adaptable method for managing these financial risks. In this work, a relationship between water levels and shipping revenues is developed and used in an actuarial analysis of the frequency and magnitude of revenue losses. This analysis is used to develop a standardized suite of binary financial contracts, which are indexed to water levels and priced according to predefined thresholds. These contracts are then combined to form hedging portfolios with different objectives for the shippers. Results suggest that binary contracts could substantially reduce the risk of financial losses during low lake level periods and at a relatively low cost of only one to three percent of total revenues, depending on coverage level.

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Precipitation or water capacity indices? An analysis of the benefits of alternative underlyings for index insurance

Cited by 30 publications

References 25 publications

Hydrological drought index insurance for irrigation districts in Spain

Hydrological drought index insurance for irrigation districts in Spain

Hydrological Drought Index Insurance for Irrigated Agriculture

Hedging the financial risk from water scarcity for Great Lakes shipping

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