Universal Journal of Agricultural Research Vol. 11(2), pp. 322 - 335
DOI: 10.13189/ujar.2023.110210
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Determination of the Amount of Premium and Indemnity in Shallot Farming Insurance

Agung Prabowo ^1,*, Sukono ², Mustafa Mamat ^3
1 Department of Mathematics, Faculty of Mathematics and Natural Sciences, Universitas Jenderal Soedirman, Purwokerto, Indonesia
² Department of Mathematics, Faculty of Mathematics and Natural Sciences, Universitas Padjadjaran, Sumedang, Indonesia
³ Faculty of Informatics and Applied Mathematics, Universiti Sultan Zainal Abidin, Terengganu, Malaysia

ABSTRACT

Insurance contract, including agricultural/crop insurance, involves premium payment by the insured and compensation payment by the insurer on the claim filed by the insured. The agricultural insurance premium in this research was calculated using Cash-or-nothing put option equation, while the amount of compensation was determined using the historical burn analysis (HBA) method, at different percentiles. This research was conducted using secondary data in the form of four-year daily rainfall, shallot production volume, and risk-free interest rate from Bank Indonesia. Primary data needed in this research were the cost for shallot planting per hectare per planting season of IDR 46,110,735. The research results with a percentile of 5% generate a premium of IDR 8,246,571. The rainfall calculation results in a window period from March to June with a window index in the form of total average dasarian (ten-day) adjusted rainfall in ascending order at an interval of 36.08 – 49.33 mm. Based on HBA method, full compensation of planting cost is given to farmers if rainfall is lower than or equal to the exit value of 36.08 mm in each percentile used. Meanwhile, partial compensation differs depending on percentile value. When percentile of 5% is used, then the compensation will be higher than the premium if rainfall is at an interval of 36.080 – 36.500 mm and lower if rainfall is at an interval of 36.500 – 36.743 mm. If rainfall is above 36.743 mm, there is no indemnity to be paid. At percentile 5%, rainfall 36.743 mm is the Trigger Value.

KEYWORDS
Black-Scholes Equation, Cash-Or-Nothing Put Option, Exit Value, Historical Burn Analysis, Indemnity, Percentile, Premium, Rainfall Index, Trigger Value, Window Index, Window Period

Cite This Paper in IEEE or APA Citation Styles
(a). IEEE Format:
[1] Agung Prabowo , Sukono , Mustafa Mamat , "Determination of the Amount of Premium and Indemnity in Shallot Farming Insurance," Universal Journal of Agricultural Research, Vol. 11, No. 2, pp. 322 - 335, 2023. DOI: 10.13189/ujar.2023.110210.

(b). APA Format:
Agung Prabowo , Sukono , Mustafa Mamat (2023). Determination of the Amount of Premium and Indemnity in Shallot Farming Insurance. Universal Journal of Agricultural Research, 11(2), 322 - 335. DOI: 10.13189/ujar.2023.110210.