The Effect of Climate Change on Insurance Premium Rates of Irrigated Wheat in Warm and Dry Region of Iran

Document Type : Research Paper

Authors

1 Department of Agricultural Economics, Colleges of Agriculture, University College of Agriculture And Natural Resources, University of Tehran, Karaj, Iran.

2 Corresponding author, Department of Agricultural Economics, Colleges of Agriculture, University College of Agriculture And Natural Resources,University of Tehran, Karaj, Iran.

10.22059/ijaedr.2025.389930.669356

Abstract

According to IPCC predictions, the vulnerability of developing countries and warm and dry regions due to climate change is higher than developed countries and other regions. While climate change itself is difficult to control, the associated damages can be mitigated by adjusting agricultural practices to better align with the changing climate conditions. One of the effective policy tools in changing the cultivation pattern is agricultural product insurance. Therefore, This study examined the impact of climate change on the yield of irrigated wheat in Iran's warm and dry regions and its effect on fair premium rates. To this end, annual time series data on irrigated wheat yields, and climate information collected from weather forecast stations from 1991 to 2018 were used to specify crop yield conditional probability distribution functions, using Moment-based regression models, and also specifying mixture probability distribution functions. Finally, a simulation approach was used to simulate the effects of expected climate changes over future years on the mean and variance of yield distribution and the yield premium rate of irrigated wheat in warm and dry regions. The actual fair premium rate for irrigated wheat in warm and dry regions, as implemented by the Agricultural Insurance Fund at the 75% coverage level, is 5.18%, while simulation results indicate that the actuarially fair premium rate is 11.27% under the baseline scenario and increases to 14.00% under the combined climate change scenarios expected in the 2030s. Therefore, implementing region-specific insurance premiums for wheat production, estimated based on the climatic risk conditions in the region, could be an effective policy to support this transition and is strongly recommended.

Keywords

Extended Abstract

Objectives

The increasing impact of climate change on agricultural production has raised concerns about its consequences for food security and agricultural economies. Among the most affected regions are warm and dry areas, where climatic fluctuations significantly influence crop yields. Iran, as a developing country with warm and dry regions, is highly vulnerable to climate change, particularly in its wheat production sector. Given the strategic importance of wheat as a staple crop, understanding how climate parameters affect its yield and how these changes influence crop insurance premium rates is crucial for sustainable agricultural planning. This study aims to analyze the effect of climate change on the yield and yield risk of irrigated wheat in Iran’s warm and dry regions and to determine fair insurance premium rates based on the associated climatic risks. By incorporating advanced probabilistic modeling and simulation approaches, this research provides a framework for adjusting insurance premiums in response to expected climate changes, thereby facilitating more effective risk management in wheat farming.

 

 

 

Methods

To investigate the impact of climate change on irrigated wheat yield and its implications for insurance premium rates, annual time-series data on wheat yields, along with daily and monthly climate variables, were collected from weather forecast stations between 1991 and 2018. The study employed Moment-based regression models to estimate the conditional probability distribution of wheat yield as a function of climate parameters. Subsequently, mixture probability distribution functions were derived using the yield conditional probability distributions. A simulation approach was then utilized to project future climate scenarios for the 2030s and estimate their effects on the mean and variance of mixture yield distribution and yield premium rates. The results were used to derive region-specific insurance premiums that reflect the climatic risk conditions in warm and dry regions of Iran.

Results

The results revealed that Key climate variables analyzed included total precipitation during the growing season, mean precipitation deficit at the flowering stage, and growth degree days during the growing season. The findings indicate that climate change will significantly impact irrigated wheat yields in Iran’s warm and dry regions. Variations in growth degree days including low, Medium, and High temperatures were found to be critical in determining yield variations. Additionally, The total precipitation during the growing season including germination, tillering, stem elongation, and flowering, and rainfall deficits in the flowering stage, were significant contributors to yield risk. Simulation results for the 2030s suggest that the combined effect of these climate parameters will lead to substantial increases in yield variability, resulting in higher insurance premium rates for irrigated wheat. As a result of these changes, warm and dry regions will experience pronounced yield reductions and heightened risks. As a result, the current uniform insurance premium structure in all regions fails to adequately reflect regional climatic risks, necessitating a shift toward differentiated premium rates based on climate-induced yield variability.

Discussion

The study underscores the urgent need to incorporate climate risk considerations into agricultural insurance policies to enhance the resilience of wheat farmers in warm and dry regions. Implementing region-specific insurance premiums can provide a more accurate reflection of yield risks and encourage farmers to adopt adaptive strategies, such as shifting cultivation practices or selecting more resilient wheat varieties. Additionally, phasing out insurance premium subsidies in high-risk areas could be considered as a policy measure to promote efficient resource allocation and discourage unsustainable wheat production in climate-vulnerable regions. Given the significant impact of climate change on wheat yields in warm and dry regions, policymakers should prioritize the development of adaptive insurance mechanisms that align with projected climatic trends. The results of this study provide valuable insights for policymakers, insurance providers, and farmers in designing risk management strategies that ensure agricultural sustainability in the face of climate change.

Author Contributions

All authors contributed equally to the conceptualization of the article and writing of the original and subsequent drafts.

Data Availability Statement

If the study did not report any data, you might add “Not applicable” here.

Acknowledgements

The authors would like to thank all participants of the present study.

Ethical considerations

The authors avoided data fabrication, falsification, plagiarism, and misconduct.

Conflict of interest

The author declares no conflict of interest.

References

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Iranian Journal of Agricultural Economics and Development Research
Volume 56, Issue 2
June 2025
Pages 79-97

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