Sustainable agriculture risk modelling and developing satellite derived index insurance

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Agricultural risk management and insurance represents a complex and interdisciplinary topic. This project aims to address a critical gap in actuarial literature, through developing new and improved actuarial approaches to agricultural insurance. A major aspect of the project will be on the development of an innovative index-based insurance scheme. Despite the promise that index insurance holds for agriculture, including possible cost efficiencies, risk transfer, transparency, elimination of moral hazard, and wide-scale application, including developing countries, to date index insurance has not been successfully implemented in a sustainable way. A main reason for this lack of success is due to basis risk, which refers to differences between the index used to determine indemnities and actual farm-level loss. A number of fundamental aspects of agricultural insurance will be addressed from an actuarial view point, including improved yield forecasting, weather modelling and ratemaking approaches. Agricultural insurance is delivered through a public-private partnership approach in Canada, as well as in many other countries throughout the world. To reflect this important cooperation, this proposed research relies heavily on a multi-stakeholder approach to address the research questions, including cooperation with Guy Carpenter & Company, a reinsurance intermediary and leader in the agricultural insurance sector, as well as Agriculture and Agri-Food Canada (AAFC). Further, this research will cooperate with the reinsurance company, Scor, and Airbus Defense and Space. It is anticipated that this research will help to strengthen Canada's position as a global leader in the agricultural sector, facilitating innovative research and development, improved higher education, and improved agricultural insurance, thereby bringing greater economic prosperity for Canadians. This work should be useful for farmers, insurers, reinsurers, producer organizations, and government, in Canada and throughout the world, as well as other researchers.