Index-based insurance of gross margin in agriculture – key challenges

Piotr Sulewski and Adam Was

No 276382, Problems of Agricultural Economics / Zagadnienia Ekonomiki Rolnej from Institute of Agricultural and Food Economics - National Research Institute (IAFE-NRI)

Abstract: The paper attempts at assessment of usefulness of the index-based insurance of gross margin compared to traditional production insurances. The analysis used FADN data and was limited to the example of winter wheat. The conducted simulations showed that the category of gross margin is characterized by higher variability than yields or prices, thus the costs of its insurance expressed as fair premium would be higher than the costs of traditional production insurance. However, the major problem in case of index-based insurances is still the basic risk related to the possibility that part of the insured will not receive compensation even though they incurred losses. The conducted analyses showed that the assumption of the index basing on the average drop in yields in a voivodeship would result in major percentage of errors as regards payment and refusal of payment of the compensation compared to individual insurance. Structuring of the system of index-based insurances would require collecting data – to construct indices – from areas of much smaller territorial coverage.

Keywords: Agricultural Finance; Farm Management; Political Economy (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-agr and nep-ias
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Persistent link: https://EconPapers.repec.org/RePEc:ags:iafepa:276382

DOI: 10.22004/ag.econ.276382

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