AIR Launches Multiple Peril Crop Insurance Model for China

by Artemis on October 31, 2011

Risk modeller AIR Worldwide have launched a new crop weather insurance model for China today. The new model is being hailed as the industry’s first Multiple Peril Crop Insurance (MPCI) Model for China and provides a fully probabilistic approach for determining losses to China’s main crops: corn, cotton, rapeseed, rice, soybeans, and wheat.

The model allows analysis of the effects of weather on each crop during the growing stage so companies can better understand their exposure based on China’s specific insurance programs, which can vary by province.

“China is a growing agriculture market with premiums second only to the U.S.,” said Dave Wolfe, executive vice president of global reinsurance at AXIS. “AIR’s China crop model captures the impact of weather on individual crops and insurance programs that vary by province. The fully probabilistic model is scientifically advanced and accounts for the unique challenges of modeling agricultural risk in China.”

AIR say that traditional methods have proved unreliable in quantifying and managing these risks, so they have leveraged their successful models elsewhere in the world to create one for China. The AIR MPCI Model for China employs AIR’s advanced Agricultural Weather Index™ (AWI) to accurately capture the severity, frequency, and location of adverse weather events, while also correctly preserving the timing of events during the season. The AWI takes into account weather variables (such as precipitation and temperature), soil conditions (such as available water capacity, surface moisture, and runoff), and crop-specific parameters (such as requirements at critical stages of crop growth, planting and harvesting dates, and resiliency to adverse weather conditions). The model explicitly models damages resulting from various weather perils, including drought, floods, and typhoons, which are the leading causes of loss in China.

The model uses data from local agencies including the China Meteorological Administration. To enable capture and modelling of the full range of potential events that could affect crops in a growing season, AIR use detailed crop specific information, weather data and soil information to develop fully probabilistic loss estimates based on a company’s crop specific exposure at county or province level.

“In the past, estimating the likelihood and magnitude of future crop losses presented significant challenges,” said Dr. Gerhard Zuba, senior principal scientist at AIR Worldwide. “Traditional approaches rely largely on historical losses, but the usefulness of such data is limited — in part because high-quality historical claims data is scarce. Furthermore, in China, the crop insurance landscape is constantly evolving: insurance penetration is growing rapidly, policy conditions and premiums are changing, and new technologies are being introduced to improve crop yields.”

This model could prove extremely useful to organisations planning microinsurance schemes in rural China and to companies looking to expand the penetration of crop weather insurance across the country.

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