Question

Which term refers to the risk that a farmer's actual crop loss is different from the payout determined by the weather index in an index-based insurance scheme?

• A. Basis Risk
• B. Adverse Selection
• C. Moral Hazard
• D. Insurable Interest

Answer 1

Answer:

A. Basis Risk

• Basis Risk is a major challenge in index-based insurance (like RWBCIS).

• It occurs when the index (e.g., rainfall recorded by the weather station) does not perfectly correlate with the actual loss experienced by the individual farmer.