Distributed Ledger Technology for an Improved Index-Based Insurance in Agriculture

Climate insurance is already a hot topic due to the increased number of climate-related catastrophic events accompanied by associated losses for the economy in general and insurance companies, in particular. The extremely hot and dry summer of 2018 in some European countries highlighted existing weaknesses of the agricultural insurance mechanisms in Europe, where the farmers had to wait for months before compensation payments could be made. Our paper aims to compare features of the yield-based insurance2 and the index-based insurance (IBI)3 in agriculture in the light of new developments and trends in information technologies (IT). The results show that an application of the distributed ledger technologies (DLT) in combination with IBI could not only resolve existing problems, but also facilitate development of the innovative insurance mechanisms at the EU level – providing effective protection against climate-related risks and preventing a systemic risk escalation.