The Impact of Air Pollution Risk on the Sustainability of Crop Insurance Losses

Bingxia Wang, Mohd Azmi Haron and Zailan Siri ()
Additional contact information
Bingxia Wang: Institute of Mathematical Sciences, Faculty of Science, Universiti Malaya, Kuala Lumpur 50603, Malaysia
Mohd Azmi Haron: Institute of Mathematical Sciences, Faculty of Science, Universiti Malaya, Kuala Lumpur 50603, Malaysia
Zailan Siri: Institute of Mathematical Sciences, Faculty of Science, Universiti Malaya, Kuala Lumpur 50603, Malaysia

Sustainability, 2024, vol. 16, issue 19, 1-23

Abstract: Climate change poses significant risks to natural and economic environments, particularly through its interaction with air pollution. As agriculture is vital for national production, and crop insurance supports social security, it is crucial to examine how air pollution affects crop insurance. Here, we quantify the impact of air quality on crop insurance claims from an actuarial perspective and evaluate the implications for the industry. Utilizing claims data from the U.S., we explore the potential of particulate matter (PM 2.5 ) as a predictor of insurance claims, building on literature that highlights its economic damage to crops. Through the application of a generalized additive model (GAM) and extreme gradient boosting, we found that PM 2.5 is indeed a factor influencing crop insurance indemnity in both models, with the GAM demonstrating superior predictive performance. Furthermore, we employed Bai and Perron breakpoint analysis to elucidate the relationship between PM 2.5 levels and crop insurance claims over time, alongside two-way fixed effects models to investigate its correlation with various crop types. Our findings highlight the need for crop insurance managers to integrate air quality considerations into their risk processes to ensure sustainability of the industry and pricing strategy in the face of evolving environmental challenges.

Keywords: climate change; air pollution; social security system; crop insurance; PM 2.5; generalized additive model; extreme gradient boosting; Bai and Perron breakpoint analysis (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.mdpi.com/2071-1050/16/19/8581/pdf (application/pdf)
https://www.mdpi.com/2071-1050/16/19/8581/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:16:y:2024:i:19:p:8581-:d:1491450

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().