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Novel solutions to insure against droughts - The use of the Standardised Precipitation-Evapotranspiration Index (SPEI) and phenological phases in designing weather index-based insurance
This study should test whether an improved representation of agricultural droughts using the Standardised Precipitation-Evapotranspiration (SPEI) Index and the inclusion of phenological observations can improve insurance solutions.The thesis makes use of rich farm-level yield and weather data
Adverse weather events occurring at sensitive stages of plant growth can cause substantial yield losses in crop production. Agricultural insurance is an important risk management tool for agricultural producers and is becoming increasingly significant as an instrument of agricultural policy. The topic is also increasingly attracting the interest of private insurance companies. While traditional indemnity-based insurance schemes need governmental support to overcome market failure caused by asymmetric information problems, weather index–based insurance products represent a promising alternative. In WII the payout depends on a weather index serving as a proxy for yield losses. However, the non-perfect correlation of yield losses and the underlying index, the so-called basis risk, constitutes a key challenge for these products. This study contributes to recue this basis risk.
The thesis will test whether the inclusion of the SPEI Index and phenological observations can reduce basis risk and thus improve the performance of WII.
An empirical example of drought prone winter wheat production in Germany will be used, making use of unique datasets and as contribution to the Horizon 2020 SURE FARM Project
http://www.aecp.ethz.ch/research/sure-farm.html
Methods: 1) Literature Review; 2) Prepare a dataset with farm-level production data, weather data and phenological phases; 3) Assess, through an empirical analysis, the viability and opportunities stemming from the inclusion of the SPEI and phenological phases in the design of index-based insurance in agriculture.
Literature
Dalhaus, T., Finger R. (2016). Can Gridded Precipitation Data and Phenological Observations Reduce Basis Risk of Weather Index- based Insurance? Weather, Climate and Society 8(4), 409 – 4019;
Conradt, S., Finger, R., & Spörri, M. (2015). Flexible weather index-based insurance design. Climate Risk Management, 10, 106-117;
Kapphan, I., Calanca, P., Holzkaemper, A. (2012). Climate Change, Weather Insurance Design and Hedging Effectiveness, The Geneva Papers 37, 286-317;
Kaspar, F.; Zimmermann, K.; Polte-Rudolf, C. (2014). An overview of the phenological observation network and the phenological database of Germany’s national meteorological service (Deutscher Wetterdienst). Advances in Science and Research. 11, 93-99;
Vicente-Serrano S.M., Beguerìa S., López-Moreno J.I., Angulo M., El Kenawy A., 2010, A global 0.5 gridded dataset (1901-2006) of a multiscalar drought index considering the joint effects of precipitation and temperature, Journal of Hydrometeorology, 11(4), 1033-1043
Adverse weather events occurring at sensitive stages of plant growth can cause substantial yield losses in crop production. Agricultural insurance is an important risk management tool for agricultural producers and is becoming increasingly significant as an instrument of agricultural policy. The topic is also increasingly attracting the interest of private insurance companies. While traditional indemnity-based insurance schemes need governmental support to overcome market failure caused by asymmetric information problems, weather index–based insurance products represent a promising alternative. In WII the payout depends on a weather index serving as a proxy for yield losses. However, the non-perfect correlation of yield losses and the underlying index, the so-called basis risk, constitutes a key challenge for these products. This study contributes to recue this basis risk. The thesis will test whether the inclusion of the SPEI Index and phenological observations can reduce basis risk and thus improve the performance of WII. An empirical example of drought prone winter wheat production in Germany will be used, making use of unique datasets and as contribution to the Horizon 2020 SURE FARM Project http://www.aecp.ethz.ch/research/sure-farm.html
Methods: 1) Literature Review; 2) Prepare a dataset with farm-level production data, weather data and phenological phases; 3) Assess, through an empirical analysis, the viability and opportunities stemming from the inclusion of the SPEI and phenological phases in the design of index-based insurance in agriculture.
Literature Dalhaus, T., Finger R. (2016). Can Gridded Precipitation Data and Phenological Observations Reduce Basis Risk of Weather Index- based Insurance? Weather, Climate and Society 8(4), 409 – 4019; Conradt, S., Finger, R., & Spörri, M. (2015). Flexible weather index-based insurance design. Climate Risk Management, 10, 106-117; Kapphan, I., Calanca, P., Holzkaemper, A. (2012). Climate Change, Weather Insurance Design and Hedging Effectiveness, The Geneva Papers 37, 286-317; Kaspar, F.; Zimmermann, K.; Polte-Rudolf, C. (2014). An overview of the phenological observation network and the phenological database of Germany’s national meteorological service (Deutscher Wetterdienst). Advances in Science and Research. 11, 93-99; Vicente-Serrano S.M., Beguerìa S., López-Moreno J.I., Angulo M., El Kenawy A., 2010, A global 0.5 gridded dataset (1901-2006) of a multiscalar drought index considering the joint effects of precipitation and temperature, Journal of Hydrometeorology, 11(4), 1033-1043
Methodological contribution to the growing literature on the design and application of index-based insurances in agriculture, applied specifically to the case of winter wheat production in Germany.
Methodological contribution to the growing literature on the design and application of index-based insurances in agriculture, applied specifically to the case of winter wheat production in Germany.
Mr. Tobias Dalhaus: tdalhaus@ethz.ch
Dr. Martina Bozzola: mbozzola@ethz.ch
Involvements
Mr. Tobias Dalhaus AECP Group ETH Zürich Email: tdalhaus@ethz.ch Website: http://www.aecp.ethz.ch/people/person.html?persid=222275
Dr. Martina Bozzola AECP Group ETH Zurich Email: mbozzola@ethz.ch Website: http://www.aecp.ethz.ch/people/person.html?persid=228519
Mr. Tobias Dalhaus: tdalhaus@ethz.ch Dr. Martina Bozzola: mbozzola@ethz.ch
Involvements Mr. Tobias Dalhaus AECP Group ETH Zürich Email: tdalhaus@ethz.ch Website: http://www.aecp.ethz.ch/people/person.html?persid=222275 Dr. Martina Bozzola AECP Group ETH Zurich Email: mbozzola@ethz.ch Website: http://www.aecp.ethz.ch/people/person.html?persid=228519