Combining participating insurance and financial policies: A new risk management instrument against natural disasters in agriculture
Abstract
Purpose
The purpose of this paper is to examine a new insurance policy against natural disasters.
Design/methodology/approach
The authors propose an optimisation model, which involves both the insurer and the farmer. The farmer decides to insure his farm if and only if insurance improves the utility he is expecting over a given year. Therefore, the paper takes the perspective of an insurer who wants to maximise the farmer's wealth, so that he will be more likely to subscribe the policy. The choice and combination of the policies are then determined and designed by the insurer to reach that aim.
Findings
The paper proves that the market for insurance could grow with a combination of participating contracts and market‐based instruments. The first cover individual risks while the second cover systematic risks.
Practical implications
The new policy leads both the insurer to manage small and large risks and the insured to be financially interested. It also provides an optimal coverage against natural events for insured farmers.
Originality/value
The paper offers many perspectives for the renewal of the crop insurance market using new instruments.
Keywords
Citation
Enjolras, G. and Kast, R. (2012), "Combining participating insurance and financial policies: A new risk management instrument against natural disasters in agriculture", Agricultural Finance Review, Vol. 72 No. 1, pp. 156-178. https://doi.org/10.1108/00021461211222231
Publisher
:Emerald Group Publishing Limited
Copyright © 2012, Emerald Group Publishing Limited