Modeling the Switch from Hail Insurance to Anti-Hail Nets

23 Pages Posted: 23 Jul 2019

See all articles by Marco Rogna

Marco Rogna

Free University of Bolzano

Guenter Schamel

Free University of Bozen-Bolzano - Faculty of Economics and Management

Alex Weissensteiner

Free University of Bolzano Bozen

Date Written: July 22, 2019

Abstract

In several areas of the world, hail is one of the most detrimental atmospheric phenomenon for agriculture, causing a significant loss of output and, consequently, of farms' revenues. Despite being a highly stochastic and localized phenomenon, thus allowing for a sustainable insurance market to hedge against its detrimental effects, this last is often subsidized. The present paper tries to figure out if the promotion of an alternative hedging instrument, anti-hail nets, could help to increase the actuarial soundness of the hail insurance market. In the first part of the paper a simple model is presented showing that the relation between the differential profitability of anti-hail nets versus insurance and the plot specific versus the average expected damage has an inverse U-shape. This implies that incentives to anti-hail nets could cause low risk farmers to exit the insurance market more likely than high risk ones. Such finding is confirmed by the empirical investigation, further showing that higher per-hectare output values and being located in an area strongly affected by hail increase the chance of a plot to be hedged through anti-hail nets.

Keywords: Actuarial soundness, Agricultural insurance, Anti-hail nets, Hail, Panel data

JEL Classification: D22, Q12, Q18

Suggested Citation

Rogna, Marco and Schamel, Gunter and Weissensteiner, Alex, Modeling the Switch from Hail Insurance to Anti-Hail Nets (July 22, 2019). Available at SSRN: https://ssrn.com/abstract=3424071 or http://dx.doi.org/10.2139/ssrn.3424071

Marco Rogna (Contact Author)

Free University of Bolzano ( email )

Piazza Universita 1
Bolzano, 39100
Italy
3774080200 (Phone)
39100 (Fax)

Gunter Schamel

Free University of Bozen-Bolzano - Faculty of Economics and Management ( email )

Via Serniesi 1
I-39100 Bozen-Bolzano (BZ)
Italy
+39-0471-013-170 (Phone)

Alex Weissensteiner

Free University of Bolzano Bozen ( email )

Universitätsplatz 1
Bolzano, 39100
+39 0471 013496 (Phone)

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