index-based insurance does not always provide farmers with indemnities when they experience crop or animal losses and the indemnity payments sometimes do not accurately reflect the size of the losses they experience. this is because an index is based on a geographical area within which farmers may have different experiences with, e.g., rainfall. as a consequence some farmers may achieve a good crop when most others in the area experience a crop failure. however, under an index-based system all farmers receive payouts. this problem has become known as "basis risk". as a direct consequence of basis risk, farmers are usually reluctant to pay the same premiums for index-based insurance than they would for standard insurance. reducing basis risk by incorporating newly upcoming data sources is of central interest in current research.