Insurance is a financial adaptation strategy increasingly used in agriculture and aquaculture. A relatively new approach to agricultural insurance risk is the use of financial derivative products, such as index- based agricultural insurance , marketed by financial institutions to farmers to help them deal with weather-related production risks . The basic idea is to rely on easily observed weather indices, such as precipitation or temperature, that co-vary with farm production. Insurance payments are received when the metric trigger for a region is reached, eliminating the need to collect farm-specific information. Proponents of index insurance argue that it can resolve the information costs and incentive problems inherent in rural financial markets, such as adverse selection, and allow provision of insurance coverage at a fraction of the costs of loss-based polices . Buyers of index policies do not have to prove their ownership of assets with weather-related losses. This lowers transactions costs and makes it more affordable to insure small plots of land.
IPCC
Climate Change 2022: Impacts, Adaptation and Vulnerability
IPCC Report