Conferences
Explaining Risk from Rainfall Index Insurance Interval Selection Using Outcome Maps
Ashlee Westerhold
Summary
Pasture, Rangeland and Forage Rainfall (RI-PRF) insurance is a single peril index insurance product focused on providing producers revenue (indemnities) due to losses in precipitation. Indemnities are paid based on the grid precipitation falling below an expected grid index. An expected grid index is calculated for each grid and index interval using long-term, historical, gridded precipitation data. A key feature of RI-PRF is the producers’ ability to select their own insurable time over a whole calendar year (i.e. insurance intervals). Producers must choose at least two, two-month insurance intervals in the program. With a wide variety of contract choices for producers, we use risk outcome maps to help producers visualize the impact of their interval selection. These risk outcome maps help the producer determine their risk preferences when selecting monthly intervals.
To develop risk outcome maps, we empirically examine the financial outcomes from both forage production and RI-PRF insurance participation. Yearly returns from insurance are calculated using current RI-PRF premiums to calculate indemnities for different insurance interval selections. The variance of net income is calculated to measure risk.
Two University of Nebraska research ranches showed risk reducing effectiveness of the insurance interval depends upon expected precipitation. Insurance intervals with high expected precipitation (during the growing season) reduced producer risk. Whereas insurance intervals with low expected precipitation (non-growing season) did not result in reducing producer risk. In addition, insurance intervals with low expected precipitation offered the highest net returns to insurance participation at one location.
Details
| Conference | 2018 Extension Risk Management Education National Conference |
| Presentation Type | Poster |