Can Satellite-Based Weather Index Insurance Hedge the Mortality Risk of Pine Stands?

Due to rising temperatures, forest stands are increasingly exposedto drought stress, which affects forest productivity through lowergrowth rates and higher mortality rates. Satellite-based indexinsurance could be an option for hedging the mortality risk oftrees. Therefore, we calculated three remotely-sensed vegetationhealth indices from MODerate-resolution Imaging Spectroradiometer(MODIS) satellite images. As indices for index insurance weuse the Vegetation Condition Index (VCI), the Temperature ConditionIndex (TCI) and the Vegetation Health Index (VHI). Wegenerate temperature, precipitation and a combined index of thetwo as benchmark indices. For 12 pine stands in northeasternGermany, we calculate the hedging effectiveness for hypotheticallydesigned index insurance contracts based on satellite andmeteorological indices. Both station- and satellite-based insurancecontracts have been shown to be effective in hedging standingtimber mortality risk. The average hedging effectiveness rangesfrom 36% for TCI-based to 48% for VHI-based index insurancecontracts.