Applying weather index insurance to agricultural pest and disease risks

In this paper, we explore the application of weather index insurance to plant pest and disease management strategies using two distinct models: (1) insuring crop loss due to disease incidence (“Crop Insurance”) and (2) insuring the use of pesticides (“Pesticide Insurance”). We find that despite the seeming ease of applying weather-based pest incidence models to an insurance product, insuring plant disease incidence models is presently unsuitable for the insurance market for both scientific and behavioral reasons. However, derivative-like applications of weather index insurance to insure pesticide use offer a means to introduce financial leverage into pesticide usage decisions. Risk management with weather index insurance would thus function as a complement to existing risk management strategies using pesticides, and offer a market-based mechanism for pesticide abatement. We conclude that more interdisciplinary collaboration is needed to develop weather index insurance for remuneration of losses due to plant pests and diseases, but weather index insurance offers a potential mechanism to reduce inefficiencies and negative externalities in agricultural markets if pesticide expenditures are insured instead of crop losses.