Developing Area Yield Crop Insurance under Alternative Parametric Methods: Case study for Wheat in East Azarbaijan Province, Iran

Abstract

In crop insurance design, the yield guarantee and the premium are very important parameters, both of which depend upon the yield distribution. Accordingly, the accurate modeling of yield distribution is essential for designing crop insurance contracts. This study employs historical county-level yield data for irrigated and dry wheat in East Azarbaijan Province, Iran for 1975-2013 to evaluate the effects of five alternative parametric distributions and generate the area yield crop insurance premiums. Results indicated that, in almost all cases, the premium rates with alternative distributions significantly differed from each other and that the beta distribution fitted the data the best except for some series for which the weibull distribution was the best. The results showed that premiums for wheat vary from 246,000 IRR per hectare in the coverage of 65% for Miyaneh to 460,000 IRR per hectare for Tabriz, and for dry wheat they vary from 265,000 IRR per hectare for Tabriz to 680,000 IRR per hectare for Maragheh. Moreover, it was found that the calculated premiums were less than traditional premiums, which would be affordable for both insured and insurers. The insured will pay lower premiums, and because the new methods are used to calculate the indemnities in this contract, and therefore there is no need for attending in individual farms to calculate the loss; it will be useful for the insurers, too.