Climate risk-reduction potential of gridded precipitation data for agricultural index-based insurance development

Index insurance has been introduced as an innovative and potential solution to mitigate several challenges caused by climate change in the agricultural sector. Despite the promising potential of index insurance, dissemination in developing countries is slow due to a lack of reliable weather data, which is essential for the design and operation of index insurance products. The increasing availability of model- and satellite-based data could ease the constraints of data access. However, their accuracy and suitability have to undergo a thorough assessment. Therefore, this study statistically and financially analyzes and compares the risk reduction potential of index insurance products designed employing various in-situ-, model- and satellite-based precipitation products (e.g., CMOPH, CPC, IMERG, GSMaP, MERRA, GLDAS, ERA5, PERSIANN, MSWEP, and MERRA2). This study employed county-level spring wheat yield data between 1982 and 2018 from 56 counties overall in Kazakhstan and Mongolia. The results showed that in the majority of cases in both countries, the hedging effectiveness of index insurance products designed based on IMERG is the highest. Moreover, among other data sources, the index insurance products designed using the PERSIANN, GLDAS and FLDAS showed higher risk reduction potential. Overall, this study highlights that satellite- and model-based precipitation products have higher accuracy and potential for index insurance design and operation than in-situ-based precipitation data.