Determining the Premium Rates of Area Yield Crop Insurance Using Non-parametric Method: the Case Study of Wheat and Barley in East Azerbaijan Province

The Producers in the agricultural sector have been faced with changes in income and are forced to employ suitable management methods to deal with risk and uncertainty conditions. This paper reviews the status of agricultural insurance for the two strategic wheat and barley crops in East Azerbaijan province, and also consider the area yeild crop insurance, as an appropriate alternative solution and determine its premium rate by a nonparametric approach.. For this purpose, the conventional two-step approach for yields risk modeling of wheat and barley were used. In the first stage the data will be detrended, while the second stage uses the detrended data to model the distribution by using a nonparametric approach. Finally, the probability of loss, fair and real premium rates and premium were calculated. The results showed that in the coverage level of 65% which is offered for traditional insurance, the actual premium rates are variable for wheat in different areas from 1.6% in Ahar county to 3.1% in Hashtrood, for dry wheat from 3.9% in Ahar to 9.3% in Myaneh, for water barley from 1.3% in Ahar to 4.9% in Maragheh and for dry barley from 2.7% in Maragheh to 6.9% in Sarab which considering to current premium rates, the results indicating the economic premium rates due to the current premium rates which will have benefits for farmers and insurers.