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Index insurance is promising to mitigate drought-related income losses in agriculture. To reduce the basis risk of index insurance, the integration of satellite data is of growing interest in research. The objective of this study is to obtain preliminary evidence regarding farmers' perceived usefulness (PU) of satellite-based index insurance.

By modifying the transtheoretical model of change to a transtheoretical model of PU, German farmers' gradual PU of satellite-based index insurance was investigated.

The results show that the average farmer perceives satellite-based index insurance as useful. It can be particularly seen that a higher level of education in an agricultural context as well as higher trust in index insurance products increases farmers' gradual PU. Moreover, higher relative weather-related income losses increase farmers' gradual PU.

It is recommended to apply latent variables when conducting future investigations regarding farmers' PU.

To the best of the authors' knowledge, this is the first study to explore farmers' PU of upcoming satellite-based index insurance by modifying and applying the transtheoretical model in a new way.

Satellite-based weather index insurance has recently been considered in order to reduce the high basis risk of station-based weather index insurance. However, the use of satellite data with a relatively low spatial resolution has not yet made it possible to determine the satellite indices free of disturbing landscape elements such as mountains, forests and lakes.

In this context, the Normalized Difference Vegetation Index (NDVI) was used based on both Moderate Resolution Imaging Spectroradiometer (MODIS) (250 × 250 m) and high-resolution Landsat 5/8 (30 × 30 m) images to investigate the effect of a higher spatial resolution of satellite-based weather index contracts for hedging winter wheat yields. For three farms in north-east Germany, insurance contracts both at field and farm level were designed.

The results indicate that with an increasing spatial resolution of satellite data, the basis risk of satellite-based weather index insurance contracts can be reduced. However, the results also show that the design of NDVI-based insurance contracts at farm level also reduces the basis risk compared to field level. The study shows that higher-resolution satellite data are advantageous, whereas satellite indices at field level do not reduce the basis risk.

To the best of the author’s knowledge, the effect of increasing spatial resolution of satellite images for satellite-based weather index insurance is investigated for the first time at the field level compared to the farm level.

The purpose of this paper is to empirically investigate the impact of weather index insurance on agricultural technology adoption in rural China.

A field experiment was conducted with 344 rural households/farmers in Heilongjiang and Jiangsu Provinces, China. DID model was used to evaluate farmers’ technology adoption with and without index insurance.

The results show that weather index insurance has a significant effect on the technology adoption of rural households; there is a regional difference in this effect between Heilongjiang and Jiangsu. Weather index insurance promotes technology adoption of rural households in Heilongjiang, while has limited impact on those in Jiangsu. Weather, planting scale and risk preference are also important factors influencing the technology adoption of rural households.

This research is subject to some limitations. First, the experimental parameters are designed according to the actual situation to simulate reality, but the willingness in the experiment does not mean it will be put into action in reality. Second, due to the diversity of China’s climate, geography and economic environment, rural households are heterogeneous in rural China. Whether the conclusion can be generalized beyond the study area is naturally questionable. A study with more diverse samples is needed to gain a fuller understanding of index insurance’s effects on farmers in China.

This research provides a rigorous empirical analysis on the impact of weather index insurance on farmers’ agricultural technology adoption through a carefully designed field experiment.

The purpose of this paper is to explain the factors affecting farmers’ willingness to purchase weather index insurance for crops in China, in the Province of Hainan, and to also provide additional background information on weather index insurance.

A survey of 134 farmers was undertaken in Hainan, China, regarding their willingness to purchase weather index insurance. A probit regression model was used, and a number of variables were included to explain willingness of farmers to purchase weather index insurance.

In total, 11 of 15 variables in the model are found to be statistically significant in explaining farmers’ willingness to purchase weather index insurance.

First, farmers’ interest in weather index insurance may be limited due to basis risk. Second, some farmers may not sufficiently understand weather index insurance and so may not purchase it, and a considerable portion of farmers may also require a subsidy if they are to purchase weather insurance.

Weather index insurance may provide a lower cost alternative than traditional crop insurance, however, basis risk remains a main challenge.

This is the first study to quantitatively study the factors affecting the willingness of farmers to purchase weather index insurance for agriculture in the province of Hainan, China.

The purpose of this paper is to review the most recent scientific literature on the determinants explaining the demand for index-insurance, the impact of index-insurance and the existing links between insurance and credit. In this meta-analysis, the authors identify key discoveries on the potential of index-insurance in enhancing credit supply for smallholders and thus farm productivity.

Following a systematic literature search in Scopus and Web of Science, relevant empirical articles were identified by using the following criteria search algorithm: “insurance” and (“weather” or “micro” or “area?based” or “rain*” or “livestock” or “index”), and ((“empiric*” or “experiment” or “trial” or “RCT” or “impact”) or (“credit” or “loan*” or “debt” or “finance”)). The authors identified 1,133 related papers, 110 of which were selected as closely matching the study criteria. After removing duplicates and analysing each document, 45 papers were included in the current analysis. The framework for addressing insurance and credit issues, in the paper, entails three subsequent themes, namely, adoption of insurance, impact of insurance and links between insurance and credit.

It is not confirmed yet that demand for insurance is indeed hump-shaped in risk aversion and the functional form of this relationship should be tested in more detail. This also holds for the magnitude of the effect of trust and education on actual demand. Furthermore, it is unclear to what extent other risk mitigation strategies form complements or substitutes to index-insurance. Lastly, the interaction between basis risk and price is important to the design of index-insurance products. If basis risk and price elasticity are indeed highly correlated, products that diminish basis risk are crucial in increasing demand. On the impact of bundled products, e.g. combination of insurance and credit, limited empirical research has been conducted. For example, it is unknown to what extent credit suppliers would react to the insured status of farmers or what the preferences of farmers are when it comes to a mix of financial products. In addition, several researchers have suggested that microfinance institutions or banks could insure themselves against covariate risk, yet no empirical evidence about this insurance mechanism has been conducted so far.

The authors based the research on scientific literature uploaded in Scopus and Web of Science. Other potentially insightful grey literature was not included due to lack of accessibility. Given the research findings, there is plenty of opportunity for further research particularly with regard to the effects of bundled products, e.g. insurance plus credit, on demand for index-insurance, supply of credit, loan conditions and impact on farm productivity and farmers’ well-being.

Microfinance institutions, insurance companies, NGOs, research institutions and universities, particularly in developing countries, will be interested to learn about the systematic review of scientific research done in the area of insurance and credit for agriculture and the possibilities for application in their own practice of supplying these financial products.

A rigorous understanding of the potential of index-insurance and credit is essential for identifying the right mix of financial products that help smallholder farmers to increase farm productivity and their own well-being.

The paper is valuable due to its rigorous evaluation of existing theoretical and empirical research around issues explaining the degree of adoption and impact of index-insurance and that of bundled financial products (i.e. index-insurance plus credit). The paper has the potential to become essential reading for academics, practitioners and policy-makers interested in researching and putting in practice the best options leading to greater farm productivity and well-being in developing countries.

The purpose of this paper is to examine factors affecting the use of forage index insurance. Forage is a difficult crop to insure, and index insurance may be well suited for forage insurance and has been implemented in several countries, including Canada, the USA and France. Despite being a promising risk management tool, forage index insurance participation rates in Canada, and other countries are low relative to crop insurance participation rates for grain and oilseed producers.

A survey was conducted with 87 beef and cattle producers from Alberta and Saskatchewan, Canada. A probit regression model was used, and a number of variables were included to examine the use of forage index insurance.

In total, 6 of 11 variables in the model are found to be statistically significant in explaining forage producers’ use of forage index insurance. Results suggest that producers who maintain lower feed reserves are more likely to purchase forage index insurance. Also, producers with higher levels of knowledge of crop insurance and a more positive attitude toward forage insurance are more likely to use forage index insurance. Furthermore, producers are more likely to use forage index insurance if they perceive drought and weather risk as being of greater importance, and if they are younger. The importance of the variable forage index insurance premium price was statistically insignificant. This could be due to the effect of subsidization, reducing the importance of price for the decision to purchase. Similarly, the use of other subsidized risk management policies, including a whole-farm margin policy (e.g. the government program and AgriStability), did not reduce forage index insurance use. A possible explanation for this is that the subsidization of the policies may make it profitable to purchase both, despite the overlapping coverage.

These results may be useful for policy makers interested in increasing forage index insurance participation rates, as forage index insurance participation rates have historically been low relative to grain and oilseed producers.

This study is believed to be one of the first studies regarding the use of forage index insurance by forage producers. Producers can be exposed to catastrophic risks such as drought or other extreme weather events, and forage index insurance may be an effective means to manage these risks. Index insurance determines payments using an index that is correlated to producers’ actual yields. A downside of this method is basis risk, which is the mismatch between the insured index and the producer’s actual yield. Research has focused on basis risk and developing improved methods to reduce basis risk. However, less research has investigated the other important factors that may contribute to forage index insurance use. Producers may have a different risk management environment regarding forage production compared to other farm activities, and these differences have largely not been examined.

The purpose of this paper is to examine farmer preference for swine price index insurance in China focusing on whether Chinese farmers are willing to consider purchasing swine price index insurance, the premium they would like to pay, as well as the extend of heterogeneity in their preferences.

A sample of 443 swine farmers in Jiangsu and Henan provinces is collected and analyzed. An Ordered Probit model is used to analyze farmers’ willingness to buy swine price index insurance and a Tobit model is used to analyze farmers’ willingness to pay (WTP) for insurance premium.

Results show that some farmers are not willing to purchase swine price index insurance. However, WTP of majority of farmers is higher than what is prescribed in the current insurance policy. Factors affecting farmers’ willingness to buy varied between two provinces. Experience in purchasing traditional swine insurance and risk perception affect farmers’ willingness to buy in Jiangsu province, while joining agricultural cooperatives, experience in purchasing traditional swine insurance and understanding of swine price index insurance affect farmers’ willingness to buy in Henan province. Farmers with non-agricultural income, longer years of swine breeding, higher degree of specialization, experience in purchasing traditional insurance, higher understanding of swine price index insurance and trust in local governments, stronger risk perception and risk preference, and not being a member of agricultural cooperatives have higher WTP.

Few studies have been conducted on swine price index insurance in China. Even less information, to the authors’ knowledge, is available on farmer preferences. The research provides a timely contribution to understand the Chinese swine price index insurance market from the perspectives of farmers.

The purpose of this paper is to examine the reduction of crop yield uncertainty using rainfall index insurances. The insurance payouts are determined by a transparent rainfall index rather than actual crop yield of any producer, thereby circumventing problems of adverse selection and moral hazard. The authors consider insurances on rainfall indexes of various months and derive an optimal insurance portfolio that minimizes the income variance for a crop producer.

Various regression models are considered to relate crop yield to monthly mean temperature and monthly cumulative precipitation. A bootstrapping method is used to simulate weather indexes and corn yield in a future year with the correlation between precipitation and temperature incorporated. Based on the simulated scenarios, the optimal insurance portfolio that minimizes the income variance for a crop producer is obtained. In addition, the impact of correlation between temperature and precipitation, availability of temperature index insurance and geographical basis risk on the effectiveness of rainfall index insurance is examined.

The authors illustrate the approach with the corn yield in Illinois east crop reporting district and weather data of a city in the same district. The analysis shows that corn yield in this district is negatively influenced by excessive precipitation in May and drought in June–August. Rainfall index insurance portfolio can reduce the income variance by up to 51.84 percent. Failing to incorporate the correlation between temperature and precipitation decreases variance reduction by 11.6 percent. The presence of geographical basis risk decreases variance reduction by a striking 24.11 percent. Allowing for the purchase of both rainfall and temperature index insurances increases variance reduction by 13.67 percent.

By including precipitation shortfall into explanatory variables, the extended crop yield model explains more fluctuation in crop yield than existing models. The authors use a bootstrapping method instead of complex parametric models to simulate weather indexes and crop yield for a future year and assess the effectiveness of rainfall index insurance. The optimal insurance portfolio obtained provides insights on the practical development of rainfall insurance for corn producers, from the selection of triggering index to the demand of the insurance.

The purpose of the present paper is to review studies on weather index-insurance as a tool to manage the climate change impact risk on farmers and to explore the study gaps in the currently existing literature by using a systematic literature review.

This study analyzed and reviewed the 374 articles on weather index insurance (WII) based on a systematic literature search on Web of Science and Scopus databases by using the systematic literature review method.

WII studies shifted their focus on growing and emerging areas of climate change impact risk. The finding shows that the impact of climate change risk significantly influenced the viability of WII in terms of pricing and design of WII. Therefore, the cost of WII premium increases due to the uncertainty of climate change impact that enhances the probability of losses related to insured weather risks. However, WII has emerged as a risk management tool of climate insurance for vulnerable agrarian communities. The efficacy of WII has been significantly influenced by repetitive environmental disasters and climate change phenomena.

This study will be valuable for scholars to recognize the missing and emerging themes in WII.

This study will help the policy planners to understand the influence of climate change impact on WII viability.

This study is the original work of the author. An attempt has been made in the present study to systematically examine the viability of WII for insuring the climate change risk.

The authors investigate whether an index-based weather insurance (WII) product can complement or replace existing traditional crop yield insurance for mitigating farmers' financial risks, with an application to blueberry growers in British Columbia (BC).

A hybrid model combining expected utility (EU) and prospect values is developed to analyse farmers' demand for WII.

While weather data are used to investigate supply elements, a hybrid model combining EU theory and prospect theory (PT) is developed to analyse farmers' demand for WII. On the supply side, a quality index is constructed and the relationship between the quality index and key weather parameters is quantified using a partial least squares structural model. The authors then model weather parameters via time-series analysis and statistical distributions to provide reasonable estimates for calculating actuarially sound insurance premiums for a rainfall indexed, insurance product. This model indicates that decreases in the proportion of a blueberry grower's total revenue and revenue volatility will decrease the possibility that they participate in WII. At the same time, an increase in the value loss aversion coefficient and WII's basis risk further leads to less demand for WII. In short, a grower may decide not to participate in WII at an actuarially fair premium due to the combined effects of the above factors. Overall, while the supply analysis enables us to demonstrate that WII can potentially help in mitigating farmers' financial risks, it turns out that, on the demand side, blueberry growers are unwilling to pay for such a product without large government subsidies.

The authors argue that the demand for insurance may be affected by the level and the volatility of a berry grower's total revenue. Hence, the authors propose a hybrid expression that assumes a farmer seeks to maximize the total utility function to capture the rational and intuitive parts of a farmer's decision-making process. The EU represents rationality and the prospect value represents the intuitive component. Meanwhile, the authors investigate the possibility of using key weather parameters to construct a berry quality index – one that could be applied to other agricultural areas for studying the relationship between weather conditions and product quality.