Climate Insurance for Agriculture in Europe: On the Merits of Smart Contracts and Distributed Ledger Technologies

Abstract

Climate insurance has become a crucial issue due to the increasing number of climate-related catastrophic events and the associated losses for the economy in general and insurance companies in particular. The extremely hot and dry summers of 2018 and 2019 in some European countries highlighted existing weaknesses in European agricultural insurance mechanisms, with farmers having to wait for months before compensation payments could be made. Our paper compares features of yield-based insurance and index-based insurance (IBI) in agriculture in the light of new developments and trends in information technology (IT). The results show that applying Distributed Ledger Technologies (DLT) in combination with IBI could not only resolve existing problems but also facilitate the development of innovative risk management tools under the EU’s Common Agricultural Policy (CAP) post-2020 reform.