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Agricultural insurance policies in Spain and the EU: an analysis of existent and new risk management tools focusing on indirect risk assessment, and asymmetric information

  • Autores: Alba Castañeda Vera
  • Directores de la Tesis: Alberto Garrido Colmenero (dir. tes.), María Inés Mínguez Tudela (codir. tes.)
  • Lectura: En la Universidad Politécnica de Madrid ( España ) en 2016
  • Idioma: español
  • Tribunal Calificador de la Tesis: Isabel Bardaji Azcárate (presid.), Carlos Gregorio Hernández Díaz Ambrona (secret.), Gerrie (van de) Ven (voc.), José María Gil Roig (voc.), Helena Gómez Macpherson (voc.)
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  • Resumen
    • A sustainable agricultural insurance system provides benefits to both insurers and insured agents. Equilibrium in the loss ratio and risk pooling are fundamental to guarantee such sustainability. Achieving equilibrium in the loss ratio requires accurate risk estimation. An agricultural insurance risk pool is a concurrence of producers whose different production risks in time and space are combined. Pooling risks together allows the losses of the producers registering claims in a certain year and a certain area to be offset by total premiums paid by producers participating in the system either registering claims or not.

      Agricultural insurance faces a number of market imperfections that end up in market failures, compromising loss ratio equilibrium and risk pooling. Common imperfections are information failure, asymmetric information and low insurance demand. This Thesis evaluates different aspects that hinder risk setting and that constitute disincentives to crop insurance demand in order to contribute with new insights that could make insurance systems more sustainable.

      First, we address a central issue in agricultural risk assessment, the availability of data. For that, we adapted methodologies, some of them commonly implemented in other scientific and technical spheres, to be applied in crop insurance. In particular, we evaluate the opportunities for using index insurances, crop models and yield gap analysis. We conclude that the use of insurance historical data rather than using indirect methods is preferred to evaluate and calibrate insurance parameters when available. However, historical data may be insufficient to establish the real risk the insurance is covering. Then, the use of weather indexes or more complex crop models is useful to design new insurance packages or coverage. Weather indexes and crop models should be used with caution as the time and spatial dependence of the risk influences the scale at which models might have validity. The common lack of observed data seriously hinders testing simulation models and thus constitutes an important source of uncertainty. The higher the complexity of the cropping system, the harder it becomes the use of indirect methods for crop risk assessment.

      Second, we evaluated the relative efficiency of alternative risk management instruments in enhancing and stabilizing farm revenue and the effectiveness of public support. Results reveal that direct payments and crop diversification are the most effective measures in decreasing income variability. Moreover, despite crop diversification does not requiring any direct public support, it provides a significant decrease in income variability. Incentives to contracting protection tools are a good compromise for both improving farm resilience to yield and price variability and to restrain public expenditure, especially when used complementarily with direct payments and/or diversification. Lastly, we conclude that farmers’ utility of contracting insurance is related not only to risk but also to its profitability.

      Lastly, we study factors that influence to crop insurance demand. For that, the concept of yield gap was useful to build evidence about asymmetric information and to evaluate the relationships between insurance parameters and insurance demand. Results suggest that the accuracy in setting the insured yield is decisive in farmers’ willingness to contract crop insurance, even more than premium subsidies. We propose that the development of new risk management tools based on mutual funds may potentially decrease insurance demand, decreasing the pool and compromising the system’s sustainability. Alternatively, we propose evaluating the possibilities for extending coverture to farmers’ revenue in order to keep or even increase risk pool is a sole and more efficient tool.


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