Index based insurance products like weather insurance carry the following advantages:
• A long term sustainable solution
• A market-based alternative to traditional crop insurance, which overcomes challenges of
- High monitoring and administrative cost
- Moral hazard and adverse selection
• Transparency - replaces human subjective assessment with objective weather parameters
• Scientific way of designing product
• Simple terms of insurance delivery
• Speedy claims settlement process
Weather insurance has multiplier effect on the economy as it enables access to factors of production. Adequate protection offered through the weather insurance product enhances the risk taking capacity of the farmers, banks, micro-finance lenders and agro-based industries, ttis in turn would result in boosting the entire rural economy.
Further, as the product is developed on the foundation of universally acceptable parameters, it is easier to transfer the risk to international financial markets through reinsurance, ttis allows for global pooling of risk and thereby more competitive "portfolio adjusted" pricing for the insurer and ultimately for the farmers.
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