When applying index insurance, indemnity payments are based on measures of an index that is considered as a proxy for the actual loss rather than on the assessment of an individual loss. The parameter of yield as an index identifies the deviations of crop yields at the smallest granular level (parcel / field) to compare it with other production sites, fields or regions. The crop’s yielding capacities are affected by many factors. That is why yields may vary significantly even at one parcel / field. In case a field falls under an agreed percentage of the yield guarantee, a pay-out is induced. Yield index is usually calculated on the basis of administrative unit to exclude adverse selection and moral hazard that’s why the basis risk is significant. EO can help assessing administrative unit crop yield via satellite remote sensing but to get trust with farmers such sensing should deliver crop yields parameters with at least 95% accuracy.
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