Adaptation of Thai Insurance in Light of Natural Disasters: an Investigation of Developments in Major Rice Crop Insurance Applying the Area-Yield Approach

Abstract

Thailand has the fifth largest harvested area of rice of any country in the world. Growing rice depends mainly on weather-related factors and it appears that the number of natural disasters has been increasing every year, having a key impact on Thai farmers. In this study, we investigate a potential risk mitigation approach for major rice insurance to protect their interests, namely the area-yield index, specifically applying a weather variable, and culminating in a rate-making process. Historical data covering the years 1995-2011 for crop rice from six provinces - LOEI, NAKHONPHANOM, NONGBUALAMPHU, NONGKHAI, SAKONNAKHON and UDONTHANI - in the northeast of Thailand are assessed. The results show the function of the expected yields for the provinces in question. On the basis of trigger yields generated at four distinct levels of coverage (80%, 85%, 90% and 95%) and two protection scales (100% and 150%), we found that there was a remarkably wide range of different premium rates for the provinces being examined.

Keywords: Area-Yield Index Insurance, Thai Rice, Weather-related Factors