An Application of Geographically Weighted Quantile Lasso to Weather Index Insurance Design

Abstract

Objective: this article studies the efficiency of a novel regression approach, the geographically weighted quantile lasso (GWQlasso), in the modeling of yield-index relationship for weather index insurance products. GWQlasso allows regression coefficients to vary spatially, while using the information from neighboring locations to derive robust estimates. The lasso component of the model facilitates the selection of relevant explanatory variables. Methodology: a weather index insurance (WII) product is developed based on one-month standardized precipitation index (SPI) derived from a daily precipitation dataset for 41 weather stations in the state of Paraná (Brazil) for the period from 1979 to 2015. Soybean yield data are also used for the 41 municipalities from 1980 to 2015. The effectiveness of the GWQlasso product is evaluated against a classic quantile regression approach and a traditional yield insurance product using the spectral risk measure (SRM) and the mean semi-deviation. Results: while GWQlasso proved as effective as quantile regression, it outperformed the yield insurance product. Conclusion: the GWQlasso is an alternative to the crop insurance market in Brazil and other locations with limited data.

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“…Crop insurance is a critical tool that can safeguard farmers' income when their crops are affected by natural disasters. Developed in the 1930s, this protective mechanism has been proven to be highly effective in protecting agricultural incomes, according to an article authored by Miquelluti et al (2022). Although available for several decades, crop insurance's market size will grow and reach USD 61.30 billion by 2030.…”

The Insurance Industry's Adaptation Practice to Climate Change

“…Own work.Crop insurance is a critical tool that can safeguard farmers' income when their crops are affected by natural disasters. Developed in the 1930s, this protective mechanism has been proven to be highly effective in protecting agricultural incomes, according to an article authored byMiquelluti et al (2022). Although available for several decades, crop insurance's market size will grow and reach USD 61.30 billion by 2030.…”

“…Miquelluti et al (2022) provided an alternative solution to address weather-related issues presented with parametric or index-based insurance. The paper further suggests that insurers can offer a non-traditional indemnity policy based on a weather index to protect policyholders against losses caused by natural calamities such as floods and hurricanes.…”

“…The benefit of this product is how claims are settled. Payouts are faster since it does not need a damage inspectionMiquelluti et al, 2022).Similarly, a study by Standohar-Alfano et al (2017) explored climate change's impact on property insurance availability and affordability in the USA, focusing on wind-related property insurance in Florida. The paper identified the effects of climate change on property values as a critical concern for the industry.…”

Contribuições para o desenvolvimento do seguro florestal no Brasil

“…características socioeconômicas dos proprietários florestais, tais como idade, nível de renda e nível educacional, assim como às características da própria floresta. Além disso, os principais riscos associados aos estudos de seguro florestal são incêndio, vento, seca e surtos de insetos.Essa observação é relevante, pois o seguro paramétrico, que tem custo de prêmio menor quando comparado aos seguros tradicionais, se apresenta como uma alternativa para mitigar os riscos decorrentes das mudanças climáticasMiquelluti, 2022).Todavia, não foram encontrados estudos que explorem essa temática no contexto das florestas.Notou-se ainda a ausência de estudos que abordaram o risco moral e a seleção adversa no contexto do seguro florestal. Esses fatores contribuem com o surgimento de obstáculos que impedem o desenvolvimento do mercado, como prêmios mais elevados e a falta de informações adequadas.…”