Pricing of Rainfall Index Insurance for Rice and Wheat in Nepal

The adverse effect of climate change on agriculture has increased the importance of weather index insurance, particularly in developing countries. By using several econometric models, this study estimated the price and evaluated its effectiveness in rainfall index insurance for rice and wheat in Nepal. Crop yields associated with seasonal rainfall in three crop reporting districts were applied for actuarial estimation. The primary findings suggest that well designed weather index insurance is helpful to reduce the yield risk and stabilize farm income for rice, but results vary across crops and districts. The study results imply that rainfall index insurance is a promising insurance product, particularly for rice. Implementation of rainfall index insurance could increase the investment in cereal production in Nepal.