Indexed on: 25 Oct '17Published on: 01 Aug '17Published in: International Journal of Disaster Risk Reduction
Index-based agricultural insurance is of particular importance for vast, less heterogeneous and sparsely populated regions. This paper has designed an index-based livestock insurance for managing snow disaster risk for the pastoral regions of Eastern Inner Mongolia, China. Based on detailed information from field surveys, the designed insurance plan targets extra feeding costs induced by snow cover rather than mortality. It employs percentage height of grass covered by snow as the trigger for insurance payments and calculates the aggregate number of days triggered between November 1st and April 30th as the index for calculating insurance payments. A comparison with existing commercial mortality insurance (CMI) based on certainty-equivalent analysis indicates that the designed snow-index insurance (SII) is superior in terms of potential users’ welfare, as it is aimed correctly at the major source of income risk. Even when the loading for administrative costs is included in the premium, the SII still brings welfare improvements for most regions of the study area.