The second objective was to quantify how Fire Weather Index (FWI) is related to fire occurrence.
As an innovative tool, weather index agricultural insurance (WIAI) was introduced into China in 2008.
The payment is triggered by and linked to the weather index, not the actual financial loss incurred by the business.
They were introduced in 1997 in the energy sector, to automatically compensate investors for financial losses when the weather index exceeds a predefined level.
They work like any other traditional hedging instruments except that the index on which they are settled is a weather index.
This boils down to writing a relationship between a financial variable (sales, volume, profits or margins) and a weather index (temperature, precipitation, wind speed, etc. or any combination).
Thanks to a groundbreaking new program that relies on advanced satellite technology, a weather index insurance payout of unprecedented scale will benefit poor African farmers.
The weather index approach also has its own challenges.
In this paper, we review experiences in piloting weather index insurance products and examine how weather index insurance could contribute to managing drought risk in smallholder agriculture.
The weather index insurance programs in Malawi often bundled credit with mandatory weather index insurance to assure worried lenders (Suarez and Linnerooth-Bayer 2010; also see section 5.1).
Note that weather index approach is premised on a correlation of a weather index (single or multiple weather parameters) with the yield.
