Cointegration Analysis of Crop Yields and Extreme Weather Factors Using Actuaries Climate Index with Application of Bonus–Malus System
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Taylor and Francis Group
Abstract
This article analyzes the long-term temporal co-movement of the extreme weather variables in the Actuaries Climate Index (ACI) and crop yields, modeling their relationship using an error correction model (ECM). The analysis suggests that significant weather variables can serve as trigger parameters in the pricing framework of weather index crop insurance. To address the challenge of weather index crop insurance while preserving the advantages of a bonus–malus system (BMS), we propose a transition rule that distinguishes between damages caused by severe weather and those resulting from the policyholder’s decisions. Subsequently, we also explore the challenges of implementing such a new hybrid BMS for crop insurance where extreme weather outcomes are integrated into the classical BMS.Description
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North American Actuarial Journal, ISSN: 1092-0277 (Print); 1092-0277 (Online), Taylor and Francis Group, ahead-of-print(ahead-of-print). doi: 10.1080/10920277.2024.2410822
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© 2024 The Author(s). Published with license by Taylor & Francis Group, LLC. This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives License http://creativecommons.org/licenses/by-nc-nd/4.0/), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is properly cited, and is not altered, transformed, or built upon in any way. The terms on which this article has been published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their consent.