Kristina Yuzva Clement|Wouter Botzen|Roy Brouwer|Jeroen C. J. H. Aerts
A global review of the impact of basis risk on the functioning of and demand for index insurance
Vrije Universiteit Amsterdam|Vrije Universiteit Amsterdam|Utrecht University|University of Waterloo|Vrije Universiteit Amsterdam|Vrije Universiteit Amsterdam
climate change increasing risks weatherrelated disasters many regions around world adverse socioeconomic impact households farmers small businesses strategies effectively managing climate related disasters include index based insurance products increasingly offered alternatives traditional insurance particularly lowincome countries however uptake index insurance remains low partially attributed inherent problem basis risk review assesses problem basis risk occurs insurance payouts depend index imperfectly related actual losses experienced insurance policyholder special attention paid design index quality sampling data estimation basis risk influence insurance demand indexinsurance supply paper concludes several policy recommendations including need systematic approach quantify magnitude basis risk inform index design participatory approaches offer index insurance existing risk sharing networks moreover recommend improve policyholders access information risk measures take limit risk create enabling environment wellfunctioning insurance market lastly integrated approach incorporates insurance mechanisms reduce basis risk