Index based weather insurance

Index Based Weather Insurance pays for an amount based on realization of a specific weather parameter measured over a pre- specified period of time at a particular weather station. It offers a method of insuring firms as small as one acre as well as larger firms by replacing costly firms visits with measurements from weather stations as the indicator of drought conditions.

The most common type of weather index insurance is the one which measures rainfall and these measurements are compared with an agronomic model specifying the crops rainfall needs, if the needs are met, none of the famers insured under the station receive a payout. On the other hand, if they are not met, the farmers are paid. This approach eliminates the need to for an individual underwriting and claims settlement which is costly when small scale farmers are the target of insurance.