Research On The Product Design Of The Weather Index Insurance

Agriculture is the main economy sector of China, but the development level of Chinese agriculture is still low and it is vulnerable to many disasters, like natural hazard and plant diseases. In order to overcome this kind of vulnerability of agriculture, the agricultural insurance came to the scene. However, Multi-peril Crop Insurance, the most popular agricultural insurance, has many defects, like high claim costs, moral hazard and slow reparation speed, which slowed down its developing process. The urge to overcome these defects prompted the emergence of the weather index insurance. Yet, it is inevitably faced with its own defects like the basis risk, highly dependent on the historical data and high promoting cost in the first stage of functioning, etc. In May 14 th 2012, China Insurance Regulatory Commission(CIRC) issued a notice to insure good work in agricultural insurance in 2012, the CIRC encouraged the insurance companies to actively engage in the agricultural insurance area and develop new insurance products. In June 2013, the CIRC issued another notice which reminded relative parties to study the weather index insurance product in order to meet the growing need for risk guarantee among the farmers. Thus, it can be seen that the weather index insurance has received more and more attention and support from the policy-makers.The goal of this paper is to offer the designing method of the weather index insurance, by the study method of insurance, the relationship between meteorology and the rice production, taken Chongqing city as an example. The writer aims to activate the agricultural insurance market and improve the efficiency of risk management in agriculture, thus, improve the well-being by promoting the weather index insurance. But the sense of this paper goes beyond the implication in Chongqing, the method is universal, so it can be applied in other areas.In the 1st part of this paper the origin and development situation of the weather index insurance is reviewed home and abroad. In the 2nd part, several representative weather insurance products are analyzed to offer some experiences to new insurance products. In the 3th part, the method to design the drought index insurance of the rice in Chongqing is introduced, along with the necessary supporting systems addressed to better promote the development of the drought index insurance.The conclusions of the paper are as follows: compared to the traditional agricultural insurance, the main virtues of the weather index insurance are: lower moral risk, quicker payment, lower transaction costs, standardized product and strong liquidity and the defections are: basic risk, dependence on the data and the high promoting costs. This paper employs the following steps to design the weather index insurance product: firstly, choose the insured crop and risk, which is rice and drought, the former one is the most common crop in Chongqing, and the latter one is the most serious problem for the crop. Secondly, determine the relationship between the output of the rice and the rainfall. The straight line moving average simulation method is used to simulate the trend of the rice yield per unit. All the production figures are changed into the production based on a certain year. Thirdly, determine the premium rate and premium. According to the insurance loss expectancy theory, the pure rate is equal to the ratio of the expectation loss value and the actual yield and the premium equals to the sum of the pure premium, administration cost, unknown risk premium and other expenses, such as the reinsurance expenses. Fourthly, determine the growth stages and the payment in each stage. The growth cycle is divided into 3 stages: the booting stage, the flowering stage and the grouting stage, and the set of the trigger value and exit value are based on the rainfall in each stage. In the last part, the supporting systems are introduced: perfect the catastrophe risk management system, establish scientific government incentive system and explore and win-win cooperation mechanism of the weather index insurance and the rural credit.