Index-Based Insurance of Gross Margin in Agriculture – Key Challenges

Problems of Agricultural Economics, 2(355) 2018, 3-26

24 Pages Posted: 20 Oct 2018

See all articles by Piotr Sulewski

Piotr Sulewski

Warsaw University of Life Sciences

Adam Wąs

Warsaw University of Life Sciences

Date Written: 2018

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: Risk, Insurance, Gross Margin

JEL Classification: Q12, Q14, G22

Suggested Citation

Sulewski, Piotr and Wąs, Adam, Index-Based Insurance of Gross Margin in Agriculture – Key Challenges (2018). Problems of Agricultural Economics, 2(355) 2018, 3-26, Available at SSRN: https://ssrn.com/abstract=3256115

Piotr Sulewski (Contact Author)

Warsaw University of Life Sciences ( email )

ul. Nowoursynowska 159
Warsaw, 02-776
Poland

Adam Wąs

Warsaw University of Life Sciences ( email )

ul. Nowoursynowska 159
Warsaw, 02-776
Poland

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