Insuring crops from space: the potential of satellite-retrieved soil moisture to reduce farmers’ drought risk exposure

Abstract

Crop producers face significant and increasing drought risks. We evaluate whether insurances based on globally and freely available satellite-retrieved soil moisture data can reduce farms’ financial drought risk exposure. We design farm individual soil moisture index insurances for wheat, maize and rapeseed production using a case study for Eastern Germany. We find that the satellite-retrieved soil moisture index insurances significantly decrease risk exposure for these crops compared to the situation where production is not insured. The satellite-retrieved index also outperforms one based on soil moisture estimates derived from meteorological measurements at ground stations. Important implications for insurers and policy makers are that they could and should develop better suited insurances. Available satellite-retrieved data can be used to increase farmers’ resilience in a changing climate.