Mexican experience on the design of catastrophic satellital parametric livestock insurances: Conceptual and theoretical basis

Abstract

The development of instruments for climate risk management allows implementation of actions to adapt to climate change as well to make eff icient use of f inancial resources to mitigate its impacts. In Mexico, the use of these instruments has not been documented. For this reason, this paper develops a conceptual-theoretical framework for instrumentation of remote sensing satellite parametric insurance to present its advantages and limitations in scope. To this end, the concept of risk unit, payment threshold and insurance-associated elements were applied to establish the climate risk associated with agricultural (livestock) activities, mainly drought. Under the critical requirement of a linear relationship between spectral index and the plant biomass without additive constant, an optimized NDVIcp spectral index was used, which resulted in the development of a technically sound insurance scheme that did not require historical information on livestock production. Moreover, it accurately reflects the reality in the f ield. Finally, the framework allowed setting the bases for designing catastrophic-type satellital parametric livestock insurance that is solid, transparent, and conceptually accessible to its users.