Climate Change and Crop Insurance: Geographical Heterogeneity in Hailstorm Risk for Wine Grapes in Spain

Abstract

Climate change presents significant challenges to the insurance industry, specially in sectors reliant on consistent climatic conditions such as agriculture. This paper investigates the impact of climate change on agricultural insurance, with a specific focus on wine grape crop insurance in Spain. We employ the provincial Spanish Actuarial Climate Index (pSACI) to analyze geographical heterogeneities in climate-related risks, highlighting the necessity for customized insurance strategies to address the increasing frequency and severity of extreme weather events, such as hailstorms. Our evaluation of spatial heterogeneity in climatic impacts utilizes Generalized Linear Mixed Models (GLMMs) and Linear Quantile Mixed Models (LQMMs). The findings reveal a significant positive correlation between pSACI and both the frequency and severity of hailstorm-related losses, emphasizing the value of pSACI inhancing regional risk assessments. These results advocate for the integration of localized climate indices into insurance risk frameworks, thereby improving the accuracy of premium and solvency capital calculations, and promoting adaptive risk management strategies.