Design And Pricing Of Modularized Weather Index Insurance Product

Uninsured risk has long been recognized as a serious obstacle to get out of the poverty trap in low-income agrarian nations. Traditional agricultural insurance fails to satisfy the demand of risk management among low-income farmers due to high transition cost, low audit efficiency, high premium rate and asymmetric information activities. This paper introduces a new agricultural insurance product, weather index insurance, and its representative pilot programs, IBLI program in Kenya and WBCIS program in India. We design a series of modularized weather index insurance product to meet the needs of risk management of farmer in area with resourceful and complex climate and diversified agricultural portfolio.By analyzing the risk management demand in target market, we disassemble the demand of the risk management of farmers and then regroup them as a modularized product, which gives them more choices on product selection, risk preference, underlying to insure. We design a series of sub-product that each satisfies certain demand of customer and price each of them, and regroup them according to the customers’requirement.Main contributions in this paper are:(1). Design and pricing each sub-product of the modularized weather index insurance system on basis of introducing and contrastively analyzing the IBLI and WBCIS insurance systems.(2). By elaborate and regroup the demands of the insured, we give more choices on index and threshold selection in product design.