RT Journal Article
T1 Is diversification effective in reducing the systemic risk implied by a market for weather index-based insurance in Spain?
A1 Martínez Salgueiro, Andrea
A1 Tarrazon-Rodon, Maria-Antonia
K1 Weather index-based insurance
K1 Spatial diversification
K1 Systemic weather risk
K1 Risk pooling effectiveness
K1 Multivariate normal distribution
AB This study assesses how effective spatial diversification is in reducing the systemic risk implied by a market for weather index-based insurance in Spain and compares rainfall- and temperature-based policies in terms of systemic risk. Based on historical weather data, daily models which rely on the multivariate normal distribution are applied to derive greater samples. The results show that the Buffer Load, as measured by the Expected Shortfall, decreases up to 67% as the level of aggregation increases. This suggests that the trading area should not be focused on a specific county, but on Spain as a whole. Considering the highest aggregation degree, it is also shown that the diversification effect is significant, of up to 0.35. Finally, it is noted that rainfall insurance is a less-risky alternative as compared to temperature-geared contracts, as it implies lower losses and prices and stronger risk pooling effectiveness. Therefore, we recommend the inclusion of this type of policies in the insurance companies’ portfolio. Finally, although this study focuses on a specific country, the proposed methodology can be easily extrapolated to other geographical areas.
PB Elsevier
YR 2021
FD 2021
LK http://hdl.handle.net/10347/32177
UL http://hdl.handle.net/10347/32177
LA eng
NO Martínez Salgueiro, A., Tarrazon-Rodon, M-A. (2021). Is diversification effective in reducing the systemic risk implied by a market for weather index-based insurance in Spain?. International Journal of Disaster Risk Reduction, 62, 102345,
DS Minerva
RD 27 abr 2026